Save or pay off debt first? Run the numbers.
With $200 a month of extra cash, 22% APR debt, and a 4% high-yield savings account: paying the debt avoids $286.00 of interest over 12 months, while saving earns $52.64. Debt wins by $233.36. But the consensus order still starts with a $1,000 starter fund. Both answers, priced.
Save-vs-debt decision · 12-month comparison · free, always
$200/mo extra, 22% debt vs 4% savings =
$233.36 debt wins by
$286.00 of interest avoided vs $52.64 earned.
12 months · constant rates · starter fund already in place
| Path | Total in | Interest effect |
|---|---|---|
| At the 22% debt | $2,400 | $286.00 avoided |
| Into 4% savings | $2,400 | $52.64 earned |
| Debt wins by | $233.36 | |
Your numbers, your winner
The consensus order
The personal-finance consensus, priced by the math above, runs in three steps. Step 1: a $1,000 starter emergency fund first, even with 22% debt outstanding, because the next surprise expense without a fund goes straight onto the card at 22%, undoing months of payoff. Step 2: high-interest debt, everything above roughly 7–8%, because the arbitrage is not close: 22% vs 4% is a $233 gap per $2,400. Step 3: the full emergency fund, then investing. The calculator assumes step 1 is done; if it is not, do step 1 first.
The interest-rate arbitrage frame
Every dollar has two candidate jobs: earn the savings rate or kill the debt rate. The spread is the wage for choosing well: 18 points here (22 minus 4), which is why the verdict is so lopsided. The frame also tells you when saving wins: job instability (liquidity beats arithmetic when income may vanish), and 0% debts (a 0% balance transfer vs 4% savings: the savings job pays $52.64 and the debt job pays $0). Match the frame to the rates, not to vibes about debt.
Estimates, not financial advice. Assumes constant rates over 12 months and ignores taxes on savings interest. Talk to a licensed professional about your situation.
Common questions
Should I save or pay off debt first?
In order: a $1,000 starter fund first, then high-interest debt, then the full fund. On the example numbers ($200/mo, 22% debt, 4% savings), the debt path wins by $233.36 over 12 months.
Why save $1,000 before paying debt?
Because the next surprise without a fund lands on the card at 22%, erasing months of payoff progress. The starter fund protects the debt plan.
When should I save instead of paying debt?
When income is unstable (liquidity beats arithmetic) or the debt is at 0% (a balance transfer vs 4% savings: saving earns, the debt costs nothing).
Is 22% vs 4% really not a close call?
No. The 18-point spread means every $2,400 of extra cash is worth $233 more aimed at the debt. Closer spreads (7% debt vs 4% savings) are judgment calls.
Next from the ledger
Emergency fund calculator: build the fund this page assumes
Debt snowball calculator: the payoff plan for the debt side
Balance transfer calculator: when the debt rate can be cut to 0%