Priority Smackdown: Should You Pay Down Your Credit Cards or Build Up Savings First?

Pop quiz: You owe $2941 to that piece of plastic in your wallet and your savings account is exactly zero. You’ve got some money in your budget to be financially responsible each month, but not enough to attack both fronts with gusto. Now what?

We polled a few financial experts and the answer might surprise you: Prioritize savings. No, really. “There’s this assumption that you need to pay off all of your debt before you start saving, but that’s incorrect,” says Kristen Robinson, senior vice president of women and young investors for Fidelity Investments. She considers starting an emergency fund the absolute top priority—even if that means you’ll technically be shelling out more money on high-interest credit cards in the long run than if you just put every dime you had toward debt repayment.

“The math of paying interest on credit cards while you’re putting money into a savings account that’s going to earn basically nothing doesn’t seem to make sense, but it’s the best thing you can do,” agrees Katie Waters, a certified financial planner and founder of Stable Waters Financial. “If not, here’s what’s going to happen: At some point before those cards are paid off, some emergency is going to come up—your car breaks, your computer dies, whatever—and if you don’t have any money in savings, you’ll wind up charging it on your card.”

Creating some padding in your savings account—and then using that to deal with unexpected expenses—can help break the plastic habit once and for all. Another reason to favor savings: If you lose your job or have any kind of major money shake-up, there are some expenses that you just can’t put on a credit card (hello, rent!). So cash is king if you don’t want to have to rely on your social safety net, aka your parents or your best friend.

“Of course, you can pay off your debt and save at the same time,” says Robinson. We’re going to state the obvious and say: The first step to doing that is to stop using your credit card. Then hit the minimum payment due for a few months until you’ve built up enough savings to weather a small storm; Fidelity recommends three to six months’ worth of living expenses. But if that credit card balance is barely budging with minimum payments and it’s giving you anxiety, save up one month’s worth of expenses and then shift more money toward your debt repayment, suggests Waters.