Save, save, and save some more: It's one piece of advice you’ll hear from almost every financial expert. And that advice makes sense, considering that about half of U.S. adults have less than $500 in savings, according to a GoBankingRates survey.

But when most people hear this advice, they may not realize that the recommendation is usually to pay off high-interest debt before you start saving. Otherwise, you could end up in a worse position if you do it the other way around.

Should you save money or pay off debt?

You should only save money while paying off debt if your interest rates are below 7%. Anything higher than that is considered high-interest debt and should be paid off first.

Why? When you carry debt with an annual percentage rate (APR) of 7% or higher, you'll pay more in interest charges than you can possibly earn on your savings. That means you’re effectively losing money despite setting aside savings consistently.

This is especially true in 2024 when the average APR on credit cards is over 21%. If you open up a high-yield savings account (HYSA), the best rate you can get is just over 5%. Plus, savings account rates are variable, meaning they can change (i.e. go down) at any time. Even if you invest your savings in the market, you're likely to earn between 5% and 8% each year on average, though returns aren’t guaranteed.

When should saving money be the priority?

Once you've eliminated debt with rates above 7%, saving for specific goals should be your next priority. If you still have lower-interest debt — this often includes auto loans, student loans, and mortgages (but not always) — stick to the minimum monthly payments while actively saving money.

Here are some important goals to save toward once you eliminate high-interest debt:

1. Upcoming needs: Necessary and expected expenses like home or car repairs.

2. Emergency fund: Aim for six months’ worth of monthly expenses to serve as a cushion in case of an emergency, such as an unexpected medical procedure or loss of income.

3. Retirement: Save enough to live comfortably in retirement, which can be done through a combination of making monthly contributions to a 401(k) or other tax-advantaged retirement account over decades, earning compound interest, and leveraging an employer's retirement contribution match.

Read more: How much money should you keep in a savings account?

When should debt payoff be the priority?

Paying off debt should take priority over saving when the interest rates on your debt are high. For debt with APR above 7%, paying the balance off as quickly as possible will help you avoid major interest charges that would chip away at your savings.

Historically, secured debt such as car loans and mortgages have had low rates, but your rates may be above 7% if you've taken out a loan in recent years. Here's what the average APR is for different types of credit and financing options at the time of publication:

• Mortgage: 7.07%

• New car loan: 7.10%

• Used car loan: 11.40%

• Personal loan (36-month term): 11.79%

• Credit card: 21.51%

• Car title loan: 300%

• Payday loan (2-week term): 391%

Depending on your situation, paying off debt first could save you hundreds or even thousands of dollars.

For example, let's say you have a credit card with a $6,329 balance (the average amount owed in 2024) at 21% APR with a minimum monthly payment of $200, but you also have a budget surplus of $400 a month that you can either use to save money or pay off debt faster. What should you do? Here's a look at the options.

Scenario 1: Save money while paying off debt

If you pay the minimum of $200 a month to the credit card company and contribute $400 a month to the HYSA, you'll pay off the debt in 46 months and be charged a total of $2,770 in interest.

At the same time, you can earn $1,835 on a HYSA with 5% APY (assuming the rate doesn't drop). Overall, this approach leaves you with a net loss of $935 after 46 months.

Scenario 2: Pay off debt and then save

If you add the $400 surplus to your $200 monthly credit card payment, for a total payment of $600 a month, you'll be debt-free in just 12 months and reduce your total interest charges from $2,770 to $602.

Then, if you start contributing the $600 a month to the HYSA, your savings will earn $978 over the remainder of that same 46-month period, leaving you with a net gain of $376.

How to save money and pay off debt effectively

Before you start plugging away at your financial plan, know that there are many strategies for speeding up your debt payoff process and saving more money. The key is to continue looking for ways to reduce your interest charges while increasing your earnings. Here are some tips to get started with:

• Avalanche method: Prioritize paying off the debt with the highest APR while paying the minimums on all your other debts. Once the highest-interest balance is paid off, roll your surplus cash to the account with the next-highest APR and continue this pattern until all your high-interest debt is eliminated. This is also known as the debt avalanche method.

• Make it automatic: Set up automatic monthly payments or bank deposits that align with your priorities so you don't have to trust your willpower each month. If your financial situation improves, increase your automatic monthly payment/deposit instead of increasing your spending.

• Hunt for lower APR: Reduce your interest charges by moving your credit card debt to a balance transfer credit card with 0% introductory APR, or by paying debt off with a personal loan that has lower rates. Be sure to consider all of the financing fees before making this move to ensure you actually save money in the long run.

• Earn a higher APY: Search for a bank account that offers a higher annual percentage yield (APY), which can help your balance grow even faster. Credit unions and online banks often have higher rates than traditional banks; here’s a list of savings accounts that pay 5% APY or more.

• Work with the Department of Education: If you have federal student loans, check to see if the Department of Education has any new programs to help reduce your interest charges or forgive your debt.

Use your employer match: Take advantage of your employer's retirement contribution match or student loan payment match to get free money for your goals.