How to Prioritize Debt Repayment vs Emergency Savings?

Here’s the next section of your guide with clear, actionable advice and simple structure to keep your tone consistent:

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Step 2: List All Your Debts

Write down each debt you owe. Include:

• Balance

• Minimum monthly payment

• Interest rate

This helps you see the full picture. Sort your list by interest rate — highest to lowest. This shows which debt costs you most over time.

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Step 3: Focus on High-Interest Debt

Once your mini emergency fund is set, target high-interest debt first — like credit cards or payday loans. These grow fast and drain your money.

Use the debt avalanche method:

1. Pay the minimum on all debts.

2. Use extra money to pay off the highest-interest one first.

3. When one is gone, move to the next.

This saves more money in the long run.

📝 Tip: If high-interest debt feels overwhelming, consider a balance transfer or consolidation loan to lower your rate — but only if it makes sense and you won’t add new debt.

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Step 4: Add to Savings Gradually

Once your most expensive debt is shrinking, start growing your emergency savings. Aim for 1–3 months of expenses, then build up to 6 months if possible.

Ways to grow savings:

• Set up auto-transfers on payday

• Use a high-yield savings account

• Save windfalls (like tax refunds or gifts)

This fund protects you from future setbacks — without needing to borrow again.

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Step 5: Adjust as Life Changes

Your plan is not fixed. Revisit it often. If you lose income, pause extra debt payments and focus on saving. If you get a raise, boost both savings and payments. Life changes — your money plan should, too.

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The Balanced Formula: 80/20 Rule

When in doubt, try this:

• 80% of extra money toward debt

• 20% into savings

This way, you stay protected while also cutting your debt down steadily.

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Final Thoughts

You don’t need to choose one over the other. The smartest move is to start small with savings, then aggressively tackle debt, and finally grow your financial cushion over time. Each step gives you more control.

Debt freedom and financial security aren’t just possible — they’re a result of steady, balanced effort. Start now, one step at a time.

Would you like a printable worksheet to track this plan?