Debt Payoff Planner
Create a payoff plan and see how extra payments can accelerate your debt freedom.
Should you pay off debt or save first?
The debate between paying off debt and saving is one of the most common financial dilemmas. The mathematical answer is straightforward: if your debt interest rate is higher than the return you can earn on savings, pay off the debt first. A credit card charging 18% interest will always cost you more than a savings account earning 3%. Every euro used to pay down high-interest debt effectively earns you a guaranteed return equal to the interest rate.
However, pure mathematics does not capture the full picture. Having zero savings leaves you vulnerable to unexpected expenses, which could force you back into debt. Most financial advisors recommend building a small emergency fund of 1,000-2,000 euros before aggressively paying down debt. Once you have that safety net, direct all extra money toward your highest-interest debt while maintaining minimum payments on everything else.
The debt snowball and debt avalanche are two popular repayment strategies. The avalanche method targets the debt with the highest interest rate first, saving you the most money mathematically. The snowball method pays off the smallest balance first, giving you quick psychological wins that maintain motivation. Research shows that the snowball method leads to more successful debt payoff, despite costing slightly more in interest, because the emotional boost of eliminating a debt keeps people on track.
Debt consolidation is a third option that combines multiple debts into a single loan, ideally at a lower interest rate. This simplifies your payments and can reduce your total interest cost. However, consolidation only works if you avoid accumulating new debt. If you consolidate your credit cards and then start using them again, you end up with more debt than you started with.
Whatever strategy you choose, the most important step is to start. Use the calculator above to see how extra payments shorten your payoff timeline. Even an additional 50 euros per month can save you thousands in interest and months or years of repayment time.