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Bottom Line Up Front

  • Before you accelerate your debt payoff, make sure you have emergency savings.
  • If your employer will match your retirement contributions, then sign up, or you could be leaving free money on the table.
  • There are 2 simple methods you can use to pay off debt faster—tackle either high-interest or small-balance loans first.

Time to Read

5 minutes

June 7, 2022

You’ve budgeted, cut expenses and now—success! You have some extra cash each month. The new challenge is deciding what to do with it: paying down debt first or putting it in a savings account. The right answer depends on your circumstances and financial goals. 

Do you have an emergency fund?

It always helps your peace of mind to have a financial cushion set aside in case of unexpected expenses. So, if you lose your job or need a car repair, you’re prepared with emergency savings. Start with a small amount of money and build from there. 

Do you have retirement savings?

Even if retirement is a long way off, open a retirement plan, such as an Individual Retirement Account or IRA. It’s okay if you can only contribute small amounts at first. The sooner you start, the better off your financial situation will be when you’re ready to retire thanks to compounding interest. 

If your job offers an investment account like a 401(k), start there—especially if it comes with a match. Why? The match is free money. Suppose you decide you can contribute $20 a month. If your employer matches that amount, you’ve doubled your money immediately.

How much debt do you have?

Once you’ve established an emergency fund and started to save money for retirement, the next step is debt management. Write down each debt and the interest rate you’re paying. 

Sample Debts
AccountAmount OwedInterest Rate
Credit card 1$136.500%
Credit card 2$2,425.259.99%
Car loan$9,450.003.99%

There are 2 simple methods of debt payoff. The first is to focus debt payments on the account with the smallest balance. The second is to work on the account with the highest interest. 

You’ll still make all your minimum payments, but you’ll add extra money to the payment for the type of debt you’ve decided to concentrate bigger monthly payments on.

Let’s say you have $100 extra each month to put toward becoming debt-free. Using the example above, if you’ve decided to work on paying off the account with the highest interest, you’d make your minimum payments for Credit card 1 and your Car loan, but for high-interest Credit card 2, you’d add $100 to that payment. Once that’s paid off, you’d add Credit card 2’s minimum payment amount plus the $100 to your Car loan’s payment, and so on.

If you’ve decided you want to work on the account with the smallest balance, you’d add $100 extra to the payment for Credit card 1. When that’s paid off, add Credit card 1’s regular payment amount plus $100 toward the credit card balance on Credit card 2. 

Not only does it feel great to pay off debt, but by eliminating one of your monthly obligations, you’ll also boost your credit score and have more room in your personal finances for other things. 

Do you have loans you could refinance?

Another way to manage your debt is to refinance loans you currently have, like student loans, auto loans or even your mortgage. If you refinance to a lower interest rate, you could save on your monthly payments and apply that savings toward paying off other debts.

Quick Tip: To save on interest while you’re paying off lenders, see if you qualify for a balance transfer of existing high-interest debt to a low- or no-interest credit card. Just be sure to note when the interest rate goes up if it’s a special offer. Check out Navy Federal’s current credit card offers.

Next Steps Next Steps

  1. If you’d like to know more about debt repayment strategies, watch our Strategies to Get Out of Debt video.
  2. We also provide financial advisors and credit counseling for our members, based on your specific needs and goals.


This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.