Is it better to pay off my debt or grow my savings? We’ve asked the experts!

couple weigh up loan repayments with savings

Got unpaid debt? Whether it’s a personal loan, credit card or even a home loan, chances are you’d prefer to see your debt out of your life than in it.  

So the question is:
is it always a good idea to prioritise your debt instead of focusing on growing your savings stash? Or can both be done in tandem? 

We’ve asked the question of Mozo’s banking expert, Peter Marshall as well as Sebastian Paulin, Plenti’s head of direct lending, and Joanne Edwards, Wisr’s chief risk and data officer. And boy we got the answers! 

Repaying debt versus stashing savings, what should I do? 

Well, it depends on your personal financial situation. And according to Sebastian Paulin from Plenti, there is no “perfect formula.” 

“When it comes to building savings, we all know staying on track can be a challenge. As you’re balancing existing debts with savings plans, you might sometimes feel like you’re taking one step forward and two steps back,” Paulin says. 

“For borrowers with enough income to live comfortably and maintain some level of disposable income, paying off debts early is a popular strategy. These borrowers have the option to prioritise their extra income in a number of ways. Some may choose to focus solely on padding their savings while they’ve got extra cash, making steady progress on loan repayments. Others may be more focused on getting out of debt for a better sense of financial freedom and ability to save more in the future.” 

Essentially, Paulin advises that borrowers in these situations need to weigh up what their savings are going towards, and how quickly they can pay off their debt to determine which takes priority. 

Here’s a scenario. 

Let’s say you have a $15,000 personal loan over three years at a 7% p.a. interest rate, meaning your normal monthly repayments would be $463. If you paid an extra $100 each month towards the loan, you would end up paying off your loan six months faster and save $324 in interest costs over the life of the loan. 

On the other hand, if you instead put $100 into a savings account each month with a 1% interest rate, you would have earned just $53 in interest over the 3 years.   

“The interest rates you can get on a savings or term deposit is usually lower than the rate you are paying on personal loan, and if that’s the case you’ll be better off paying off a personal loan, or any loan for that matter, over trying to save in an interest account,” Marshall says. 

“It’s also always a good idea to have an emergency savings amount built up in case you need to cover the cost of the unexpected.”

How prioritising debt helps your credit score 

Paying off debt early looks good to credit reporters. And a healthy credit score looks good to future lenders, meaning you better your chance of snagging a lower rate the next time you borrow. 

“How do you know in advance your chances of getting a good deal when you next need to borrow money? The answer, in part, is your credit score,” Wisr’s Joanne Edwards says.

“Your credit score is like a measure of your financial fitness, it’s made up of parts of your financial history - bills, credit cards, loans and if you’ve made or missed any repayments. A higher score is advantageous when looking to borrow money and could mean access to other benefits like better interest rates, or approval from the best lenders.”

So, how can you pay off your debt early? 


Along with having to make extra repayments on a single loan or credit card, if you have multiple debts a debt consolidation loan might be what you need. 

“Whatever you’ve spent your money on, the key thing is to simplify your debts and pay back as much as you can as soon as you can. Consider whether consolidating all your debts into one can help you make payments on time as well as saving you money on fees and charges,” Edwards says. 

A debt consolidation loan is a type of personal loan where your multiple debts, such as personal loans, car loans, credit cards, are rolled into one sum. This allows borrowers to make one monthly repayment at one interest rate, which is generally lower than at least one of their separate debts. 

“These loans allow borrowers to get a head start on paying off loans and can often mean loans are paid off faster thanks to lower interest rates. On the other hand, if borrowers want to extend the life of their loan, they can opt for a longer payment term (for example, 5 years), to access a lower monthly payment that will allow them to build savings while paying down their debt,” Paulin says. 

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What’s the catch when paying off debt early? 

Marshall explains that while paying off debt early is a good thing, it’s important to pay attention to the additional costs on your borrowing products when making additional contributions.

“In the case of personal loans and home loans, lenders sometimes charge customers a fee each time they make an extra repayment. Plus, sometimes these products charge early repayment penalties for those borrowers that pay down their entire debt ahead of time - which can cost hundreds of dollars,” he says. 

“It’s important to be aware of these costs when thinking about making early repayments on your debts. Because at the end of the day if you end up forking out more in fees than what you are saving in interest, the truth is, it isn’t worth it.” 

It’s confirmed: being a good saver is crucial

The importance of saving money is simple, according to Paulin.  

“It allows you to enjoy greater security in your life and improves your financial wellness. If you have savings set aside for emergencies, you have a fallback should something unexpected happen,” he says. 

But how can I be a good saver, you ask?


Paulin says to focus on building good money habits – to consider automating debt payments and to not spend when you don’t have the funds.

“It’s the little things that will make all the difference,” he says. “Also, use apps & digital tools to track where you’re at.”

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