While there is no easy answer to this question, putting aside a small amount of money might be beneficial in the long run since it builds up a good habit of saving, even when times are tough. However, if the debt is a costly consumer debt, such as an 18% credit card, one should focus on paying down this debt which is likely charging a much higher interest rate than the interest earned on savings. Visit www.powerpay.org to explore alternative debt repayment strategies and to examine the effect that making extra payments on debt would have on the overall repayment amount and time. Financial calculators, such as those found on the Web sites of financial publications, can be used to show the benefit of regular savings. Comparing the results of these two different types of calculations, those for debt reduction and those for savings, can help you make an informed decision. For example, you might decide to put 75% of every available savings dollar toward debt repayment and 25% toward savings. We would like your feedback on this Personal Finance Frequently Asked Question.

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