Is It Better to Save or Pay Off Debt First? (Australia 2025 Guide)

If you're juggling savings goals and credit card bills in 2025, you’re not alone. Many Australians face the classic financial question: should you save money or pay off debt first?

Start with an Emergency Fund

Before tackling debt aggressively, aim to build a small emergency fund — typically $1,000 to $2,000. This prevents you from going deeper into debt when unexpected costs arise.

Compare Interest Rates vs. Savings Rates

• Credit card interest: 17%–21%
• Mortgage rates: 6%–8%
• Savings accounts: 4%–5% in 2025 (introductory rates)

Conclusion? You're often better off paying down high-interest debt before building long-term savings.

When Saving First Makes Sense

• You have no emergency fund at all
• Your debts have low interest (e.g., HECS/HELP loans)
• Your income is unstable — buffer first!

When Paying Debt First Makes Sense

• You're paying over 15% interest (credit cards, payday loans)
• You already have 1–2 months of expenses saved

Find a Balance

Often, the smartest approach is a hybrid: build a small buffer, then use 70% of surplus money to reduce debt, and 30% to build savings.

Final Tip: Don’t just guess — calculate! Use tools like Moneysmart's savings vs. debt calculator.

Disclaimer: This article offers general financial insights. Please consult a financial advisor for personalised advice.