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Paying off debt vs. saving money is a tough financial choice. Prioritizing debt repayment can help you repay what you owe faster, freeing up more money in your budget for saving. It can also help you spend less on interest charges.

But paying off debt and delaying saving might backfire. If you don’t have savings and you get hit with an unplanned expense, you could end up with even more high-interest debt.

Whether it makes sense to pay off debt or save depends largely on your financial situation. The right decision might be to try to do both.

The First Priority for Everyone: Build a Starter Emergency Fund

Without an emergency fund, an unplanned expense or loss of income could result in racking up even more debt, putting you further in the hole.

Financial professionals generally recommend building an emergency fund of three to six months’ worth of expenses. If you’re self-employed or work seasonally, you may want to aim closer to eight or even 12 months’ worth of expenses. An emergency fund calculator can help you figure out how much to save.

You could stash your emergency savings in a high-yield savings account. These accounts are designed to earn more interest than traditional savings accounts, which could potentially help your savings earn even more.

To figure out how quickly the balance in your savings account might grow, you can look at how frequently the interest compounds. (Compounding is when the interest is added to the principal in the account and then the total amount earns interest.) By plugging your information into an APY calculator, you can see the power of compound interest at work.

💡 Quick Tip: Are you paying pointless bank fees? Open a checking account with no account fees and avoid monthly charges (and likely earn a higher rate, too).

How to Decide What Comes Next: Compare Interest Rates

Once you’ve got your emergency fund in shape, you can focus on your debt. What’s important here is the kind of interest your debt has. Analyze all the debt you have — car loans, student loans, credit cards, and so on — and determine whether it’s high-interest debt or low-interest debt.

When to Aggressively Pay Down Debt (High-Interest Debt)

High-interest debt, such as credit card debt, can quickly accumulate and become overwhelming. The longer it takes to pay off, the more interest you’ll accrue, making it harder to escape the debt cycle. When you have high-interest debt, it makes sense to focus on paying off your debt first.

When to Prioritize Saving and Investing (Low-Interest Debt)

On the other hand, if you have debts with relatively low annual percentage rates (APRs) and you don’t feel unduly burdened by them, you could prioritize saving, while paying off your loans and other debts according to their payment schedules.

Recommended: Why Your Debt to Income Ratio Matters

The Best of Both Worlds: How to Pay Off Debt and Save Simultaneously

If you have high-interest debt under control and you also have an emergency fund, consider saving and paying down debt at the same time. Here are some tips to help you manage both.

•   Create a budget: A budget can help you track your income, expenses, and savings. The key is to allocate specific amounts for debt repayment and savings to ensure both are addressed every month.

•   Cut unnecessary expenses: Review your expenses and identify areas where you can cut back. Redirect these funds toward debt repayment and saving.

•   Automate saving: Once you have target monthly savings amounts, it’s a good idea to set up automatic transfers to your savings accounts. This ensures consistent saving without the temptation to spend the money.

While you’re at it, make sure you’re happy with your banking experience. You can compare bank accounts to get the best interest rates and customer service, for example.

•   Take advantage of your employer’s 401(k) match: If your employer offers a 401(k) plan with a company match, it’s a good idea to try to contribute at least enough to get the maximum employer match. This is essentially free money and it could help add to your retirement savings.

•   Increase income: You might also want to explore ways to boost your income, such as taking on a side gig, freelancing, or asking for a raise. You can then use the additional income to pay down debt faster and boost your savings.

•   Use windfalls wisely: If you receive a bonus, tax refund, or any unexpected sum of money, consider using it to pay down debt or boost your savings rather than going on a shopping spree.

Strategies to Pay Down Debt

Once you commit to paying down your debt, you’ll want to come up with a plan for how to do it. Here are some strategies to consider.

The Debt Snowball Method

With the snowball method, you list your debts in order of size. You then funnel extra money towards the smallest debt, while paying the minimum on the rest. When the smallest balance is paid off, you move on the next-smallest debt, and so on. This can provide psychological benefits by giving you quick wins and motivating you to continue.

As you’re paying down debt, be sure to monitor your checking account regularly to make sure you have enough money in it to cover your bill payments.

The Debt Avalanche Method

Another approach is the avalanche method. With this strategy, you list your debts in order of interest rate. You then direct any extra money toward the balance with the highest rate, while paying the minimums on the other debts. Once the highest-interest debt is paid off, you move to the next highest, and so on. The debt avalanche minimizes the amount of interest you pay over time.

Recommended: How to Set and Reach Your Savings Goals

The Takeaway

Saving and paying down debt is a balancing act. Which is more important? There’s no one-size-fits all answer. Generally speaking, you’ll want to fund your emergency savings account before you aggressively focus on debt payoff. After that, you can focus on saving and knocking down debt at the same time.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What is considered high-interest debt?

While there is no one definition of high-interest debt, it is typically considered to be debt with a high interest rate, often in the double digits. For example, the average credit card interest rate as of August 2025 was 24.35%. Credit cards are considered high-interest debt, as are certain types of loans (such as personal loans) for borrowers whose credit is poor.

How much should I have in my emergency fund before aggressively paying down debt?

Before aggressively paying down debt, it’s a good idea to save three to six months’ worth of living expenses in an emergency fund. Otherwise, if you don’t have any savings to draw on to cover an unexpected expense or event, you might have to use high-interest credit cards to get by, which would compound your debt.

Should I use my savings to pay off my car loan or student loans early?

Whether you should use your savings to pay off your car loan or student loans early depends on your specific financial situation. Generally speaking, if you have additional savings beyond the recommended three to six months’ worth of money in an emergency savings fund, you might consider using some of that extra savings to pay off your car loan or student loans early. But it’s best not to use the money in your emergency fund for this, so that you’ll be covered if a surprise expense pops up.

Should I stop contributing to my 401(k) to pay off debt?

If your employer offers a 401(k) plan with matching employer funds, it’s wise to contribute at least enough to get the full employer match, if possible. This is essentially free money you would otherwise miss out on. Once you’ve received the 401(k) employer match, you could work on paying off your high-interest debt.

Does paying off debt or saving have a bigger impact on my credit score?

Paying off debt generally has a bigger impact on your credit score than saving does.That’s because paying off debt can reduce your credit utilization, which is the amount of credit you’re using compared to the amount of credit you have available. The lower your credit utilization, the better. A low credit utilization can have a significant positive impact on your credit score. In fact, credit utilization accounts for 30% of your FICO® Score.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

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Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

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Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

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If you borrowed a federal student loan to pay for higher education costs, you won’t make payments directly to the government. There are a number of loan servicers who work with the U.S. Department of Education to oversee loan repayment for federal student loans.

Understanding who your loan servicer is, and what they do is essential for the loan repayment process.

What Are Student Loan Servicers?

Student loan servicers are companies that take care of the disbursement, billing, and customer service aspects of your federal student loans. They can help you figure out things like which repayment plan you should be on and whether to consolidate your student loans.

Need deferment or forbearance? They can also help you set that up. Loan servicers are basically a one-stop shop for everything you need to know or changes you need to make on your federal student loans.

List of Major Student Loan Servicers & Companies

Here are some of the major student loan servicers:

EdFinancial Services (HESC)

Address: P.O. Box 36008, Knoxville, TN 37930-6008
Phone: 1 (855) 337-6884
Website: www.edfinancial.studentaid.gov

Located in Knoxville, Tennessee, Edfinancial Services has been providing loan servicing for over 30 years. They work with both federal and private student loans, as well as schools that need help with things like financial aid processing.

MOHELA

Address: 633 Spirit Drive, Chesterfield, MO 63005-1243
Phone: 1 (888) 866-4352
Website: www.mohela.studentaid.gov

MOHELA is a student loan servicer headquartered in St. Louis, Missouri with offices in Columbia, Missouri and Washington, DC. They have been around for over 40 years and focus primarily on federal student loans.

Nelnet

Address: P.O. Box 82561, Lincoln, NE 68501-2561
Phone: 1 (888) 486-4722
Website: https://nelnet.studentaid.gov/welcome

Nelnet is one of the biggest student loan servicers in the country. Headquartered in Lincoln, Nebraska, they service federal and private student loans under their financial services division. They also acquired Great Lakes Educational Loan Services, began servicing student loans from FedLoans, and are a for-profit company listed on the New York Stock Exchange.

Aidvantage

Address: For general correspondence, P.O. Box 300001, Greenville, TX 75403-3001
Phone: 1 (800) 722-1300
Website: https://aidvantage.studentaid.gov/

Aidvantage, a branch of Maximus Education, LLC, is servicing either Direct or FFEL federal loans for the U.S. Department of Education. Aidvantage took over the loans that were formerly administered by Navient, a student loan servicer who stopped working with the U.S. Department of Education in September 2021.

ECSI

Address: For assistance requests, P.O. Box 1289, Moon Township, PA 15108
Phone: 1 (888) 549-3274
Website: https://heartland.ecsi.net/

Founded in 1972, ECSI stands for Educational Computer Systems, Inc. In addition to working as a student loan servicer for federal student loans, they also provide support with tax document services, tuition payment plans, and refund management.

Default Resolution Group

Address: Correspondence can be sent to P.O. Box 5609, Greenville, TX 75403-5609
Phone: 1 (800) 621-3115
Website: https://myeddebt.ed.gov/

Part of the U.S. Department of Education, this organization provides information and assistance for borrowers who have federal student loans in default or have received a grant overpayment. Grants, such as a Federal Pell Grant, may need to be partially repaid in the event the student receives an overpayment.

How to Find Out Who Your Student Loan Servicer Is

You don’t get to pick your student loan servicer, since they’re assigned to you when your loan is disbursed. If you’re not sure who your loan servicer is, don’t worry. Finding your servicer is easy. You can look it up by visiting the Department of Education’s student aid website, which has all the information about your federal student loans and contact information for the loan servicers.

Additionally, in some cases, student loans may be transferred between servicers due to the company’s closure, the expiration of a government contract, and more. Should this happen, borrowers are supposed to be notified of the change.

Can You Change Your Student Loan Servicer?

While sometimes student loans can be transferred from one servicer to another, this usually doesn’t happen simply because a borrower requests it. The main way you can change servicers is if you refinance your student loans from federal loans to private student loans.

By refinancing, you can potentially cut interest costs over the life of the loan, if you’re able to qualify for a more competitive interest rate. Refinancing can also allow you to adjust the repayment term on the loan, though extending the loan’s repayment term may increase the interest costs over the life of the loan.

However, there are also some downsides. If you refinance your federal student loans with a private lender, you’ll no longer be eligible for income-based repayment, and you might lose other federal loan protections like the option for deferment or forbearance or Public Service Loan Forgiveness. This may be important if you are uncertain about your future income or you are struggling with your repayment.

​​Private Student Loans

The loan servicer on a private student loan is typically the lender. Private loans can be helpful for students looking to fill funding gaps when federal aid and scholarships aren’t enough to pay for tuition. They don’t always offer the same benefits as federal student loans, like options for deferment or the ability to pursue Public Service Loan Forgiveness, so they are generally considered only if a student has closely reviewed all other options.

The Takeaway

Student loan servicers are private companies that work with the U.S. Department of Education to administer federal student loans. They manage student loan payments, oversee deferment or forbearance applications, and provide assistance to borrowers with questions about their repayment plan or their student loans in general. Private student loans are generally managed by the lender.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

FAQ

What is the most common student loan?

Federal student loans are the most common type of student loan borrowed to pay for higher education costs. Federal student loans include Direct Subsidized and Unsubsidized loans and PLUS Loans. Approximately 92% of student loans are currently federal ones.

Who are the main student loan servicers?

The U.S. Department of Education works with several student loan servicers who manage and administer all federal student loans. Private student loans are, for the most part, serviced by the lender who made the loan. In some cases, your loan servicer may change. If it does, you should receive a notice of the change.

What do loan servicers do?

Loan servicers are companies that manage the different facets of student loan repayment. They administer the loan, collect payments, and provide assistance to customers with questions related to their student loan repayment.

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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