Is Saving Money While You're in Debt a Good Idea?If you’re in debt, conventional wisdom says paying off that debt is your top financial priority. Paying off debt is generally a good idea, but, like many things in finance, it actually isn’t that simple. Even when you’re in debt, saving money can be the right approach under certain circumstances, and knowing those circumstances can help you maximize your money and protect you from further financial stress. Keep reading to learn about three situations where you should consider saving money despite carrying debt.

You don’t have an emergency fund

Saving money for an emergency fund while you’re in debt may seem like a silly thing to do. After all, you’re already in debt, so isn’t paying that off an emergency? However, not all debts have the same level of priority, and saving some money can help you avoid taking on debts with bad terms down the road. For example, let’s say you’re paying off a loan with 15% APR, and then your car breaks down. You need your car to get to work, so getting your car repaired is an urgent expense that you must cover so you can keep earning income. In that situation, if you had been putting all of your money toward paying down your 15% APR loan, you would probably have to take out another loan to cover your car repairs (possibly one with a much higher interest rate than your current loan). If you had been saving money in an emergency fund, though, you could pay for your car repairs without going further into debt.

Money that you have already invested into paying off debt can’t be spent on anything else, but money in an emergency fund is flexible, and can cover critical expenses as they come up. If you don’t have an emergency fund, spending a few months building up $1,000 in a high-yield online savings account while making the minimum payments on your debts can greatly improve your ability to handle the hurdles life occasionally throws at you. To buy yourself some time to save, you can take advantage of a balance transfer credit card, which allows you to transfer the debt from your high-interest credit card to a new card with a long 0% APR intro period on balance transfers. Doing this will give you ample time to pay down the balance without spending an arm and a leg on interest. While most cards charge a balance transfer fee of 3% to 5% of the transfer, there are a number of cards with no balance transfer fee.

You have access to an employer match

Some people have employer-sponsored retirement plans, such as 401(k) or 403(b) plans. If you’re one of those people, looking into whether your employer will match your retirement contributions up to a certain percent can lead to massive gains on your retirement fund. While it’s difficult to plan for the far future when you’re dealing with debt, especially high-APR debt, contributing to a retirement plan to take advantage of an employer match is often worth it, as it offers a return on investment that’s even greater than most debt interest rates.

Keep in mind, though, that not all 401(k) plans let you keep 100% of the employer match contribution money right away. Some plans have what are called vesting schedules, which slowly transfer ownership of the employer match money to you, depending on how long you’ve worked for that employer. For instance, a vesting schedule may say that employees who have worked for a certain employer for five years get to keep 80% of that employer’s match contributions if they leave, but employees who have worked for that same employer for three years would only get to keep 40% of the match contributions. If you are planning on leaving a job before your employer’s match contributions vest at all, then contributing to a retirement plan while you’re in debt may not be a great idea for you, but if you think you’ll stay at a workplace long enough to get even 20% vestment, you should strongly consider it.

Your debt has low APRs

Normally, the main reason you want to pay off debt quickly is because the high APR on debt will cost you more money than you could reasonably make investing. However, if all of your remaining debts have an APR of 4% or lower, that changes. At that point, not only could you build a sizable emergency fund and take advantage of employer matches, you could make saving money your primary focus. Contributing spare cash to a 401(k), an individual retirement account or a savings fund for further education will probably pay off more than completely eliminating your low-APR debt.

Remember, though, that low-APR debt is still debt, and you should make a budget and cut back on luxuries if you have to in order to make sure you can still make the minimum payments. Additionally, carrying a large amount of debt compared to your total available credit can negatively affect your credit scores, as it will give you a high credit utilization ratio. If you’re concerned about your credit scores and want to take care of your low-APR debt for good, that’s still a completely fine way to handle your finances.

Being in debt can put you under a lot of pressure, but you shouldn’t let that distract you from your other options. To learn more about financial tools you can use to improve your life, follow our personal finance blog.