Balancing Savings and Debt

Let’s talk about statistics!  How would you feel about odds of 4 out of 10?  5 out of 10?  Maybe 3 out of 10 is better.  How about 2 out of 10?

I know, it’s hard to know which is better if we don’t know what the odds are for.  If we are talking your odds of being in a car accident in your lifetime, well then 2 out of 10 would be much better than 5 out of 10.  How about your odds of winning the lottery jackpot?  Definitely 5 out of 10, but even a 20% chance really would be more than satisfactory.

According to recent research, here is what the aforementioned odds relate to:

  • 4 to 5 out of 10 Americans are living paycheck to paycheck.
  • 2 out of 10 Americans making more than $100,000 per year are living paycheck to paycheck.
  • 5 out of 10 Americans don’t have any emergency savings.
  • 4 out of 10 Americans would not be able to cover an emergency expense of $1,000.
  • 3 out of 10 Americans have more credit card debt than savings.

Yup, definitely want to go with the lower odds on those facts.

Pay particular attention to the second statistic dealing only with people making over $100,000 per year.  This is not just a low-income issue.  Spending and saving issues face all strata of American demographics.

Adding in the last statistic, I think we can all understand how a lack of savings and increased credit card debt go hand-in-hand.  After all, expenses are going to come up.  And if we don’t have the savings, that money has to come from somewhere.  Credit cards are, quite honestly, the easiest place to come up with extra money.

With all of that as a foundation, let’s say you’ve decided to make a concerted effort to get things on a better track.  You want to get that debt paid down and build up some savings.  But those two items seem at least a little contradictory.

The more you put towards debt, the less you have to put in savings.

The more you put in savings, the less goes to debt and the more interest you pay over time.

So what do you do?

seesawDid you ever play on a teeter-totter as a kid?  It kind of makes me sad that you so rarely see these wonderful pieces of equipment on playgrounds anymore.  Back and forth, up and down.  It was a great lesson on the physics of mass and leverage.

And then there was the lesson on momentum.  Someone on the other end would give a mighty push up so they took off like a rocket.  With your under-developed pre-pubescent sense of humor, you would pull your feet up and eliminate any controlled deceleration until your seat hit the hard ground.  The sudden stop of the teeter-totter did not, however, equal the sudden stop of your teeter-totter partner.  The beloved cherry bomb would separate them from the seat and, if all forces came together just right, they could even flip right over their handle and slide face-first down the length of the teeter-totter.  Then, once you knew they weren’t dead, everyone had a great laugh.  Everyone other than the victim of the cherry bomb.  Maybe that’s why we don’t see many teeter-totters any more.

And now, the point of this rambling –

Savings and debt payments are the two passengers on your teeter-totter of personal finance.  You do NOT want to plop everything on one side or the other, effectively cherry bombing the other.  Really, it won’t be funny.

Figuring out debt payments and savings contributions truly is a balancing act, and not necessarily one that requires a perfectly even balance either.  We pretty much always want to be making headway on both ends, but the balance will be different for each of us and may even change for a person over time.

If you have one particularly high-interest debt that is costing a lot of extra money to carry, you may want to move a little more towards your debt payments.

If you know you have a significant expense coming up, like a newer vehicle or the birth of a child, you may want to shift more towards your savings.  After all, you can’t really put off the delivery of a child based on your finances.  They are coming whether you are ready or not.

Something like the purchase of a new home may actually require a more balanced approach.  Existing debt will reduce the amount of mortgage that you qualify for, so you may want to get those paid down.  But most mortgages also require a certain amount of cash reserves (accessible money in your checking or savings account) for things like down payment and closing costs.

In short, there is NO magic answer on how you should divide your money between savings and debt.  Every situation is unique and requires a unique approach.  The good news is that you have the freedom to decide how to balance your finances.  Yes, you even have the freedom to not pay anything towards your debts.  There are going to be consequences for that, but it is an option.

If you would like some help figuring out how to balance your finances, the counselors at the Center for Financial Resources can help.  They have a lot of experience understanding statements, identifying goals, and figuring out a plan to make it all happen.  All you have to do is reach out for an appointment and bring all of your financial information with you.  You can schedule an appointment on our website at or by calling us at 605-330-2700.


written by Breck Miller, Community Relations Coordinator

LSS Center for Financial Resources
Consumer Credit Counseling Service | Housing Resources | Sharpen Your Financial Focus| Financial Fitness Education
705 East 41st Street, Suite 100 |Sioux Falls SD 57105-6047
605-330-2700 or 888-258-2227
Strengthening Individuals, Families & Communities

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