Most people believe the key to financial success is to save money. While that is generally true, there is one important exception:
If you are carrying high-interest debt, your first priority should often be paying down that debt rather than building savings.
At VSF Services, we call this approach Save Within Debt. It helps reduce interest costs, eliminate debt faster, and build wealth more efficiently.
What Is Save Within Debt?
Consider a situation we often see: a client is doing well financially, paying their bills and consistently saving money. They have $30,000 in savings earning 1.5%, but at the same time carry a $50,000 line of credit at 8%.
They’re doing the right things, but their money could be working more efficiently.
Rather than keeping the $30,000 in savings, we would generally recommend applying it toward the line of credit. Their debt immediately drops from $50,000 to $20,000, reducing the interest they pay every day.
From there, each payday:
- Make your regular planned payment toward your line of credit.
- Apply any extra cash you don’t need that month toward the debt.
- Avoid accumulating savings while the debt remains.
Because a line of credit is revolving credit, the money remains available if you truly need it. If an unexpected expense arises, you can borrow it back.
Combining Strategies: Save Within Debt + BAIE
Once you understand Save Within Debt, you can make it even more effective by combining it with another strategy we use: BAIE (Budget for Annual and Infrequent Expenses).
Normally, we recommend setting aside money from every paycheque for annual and infrequent expenses. If you’re unfamiliar with BAIE, see our blog:
Why my budget never works? – BAIE
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While paying off your line of credit, instead of setting that money aside in savings, apply it toward your debt. When an annual or infrequent expense arises, you can reborrow the amount if necessary.
As long as your overall debt continues trending downward, the strategy is working.
Why This Works
Paying down debt is like earning a guaranteed return.
An 8% line of credit means every dollar you repay effectively saves you 8% annually. Finding a guaranteed after-tax investment that consistently produces that return with no risk is difficult.
Never Carry a Credit Card Balance
If you have access to a line of credit, never leave a balance on your credit card for more than a month.
Credit cards often charge 20% or more, while lines of credit usually carry much lower interest rates. If you have to, pay off your credit card with a line of credit and you can save hundreds, or even thousands, of dollars over time.
If you don’t already have a line of credit, consider applying for one before you need it since it can be challenging for banks to approve you when you need it the most.
But I Won’t Have Any Savings!
Not exactly.
Your available borrowing room becomes your emergency reserve while you eliminate your debt. As your debt decreases, your available credit increases.
Once the line of credit is paid off, redirect those same payments toward savings and investments. Without interest working against you, your savings will grow much faster.
The Goal
The Save Within Debt strategy is about using your money where it has the greatest impact.
Rather than trying to save and repay debt at the same time, focus on eliminating expensive debt first. Once it’s gone, you can redirect those payments toward building your emergency fund, investing, and achieving your long-term financial goals.
In many cases, the fastest path to building wealth isn’t earning more interest on your savings, it’s paying less interest on your debt.
Disclaimer: This article is provided for general educational and informational purposes only and should not be interpreted as personalized financial, investment, tax, legal, credit, or debt-management advice. Individual circumstances vary, including income, expenses, debt obligations, interest rates, access to credit, lender terms, risk tolerance, and financial objectives. Before implementing a debt repayment strategy, using or applying for a line of credit, moving savings, or making other financial decisions, readers should consult an appropriately qualified professional who can assess their individual circumstances. Access to and availability of credit are subject to lender approval and may change. Any examples, expected outcomes, interest savings, or other financial benefits described in this article are illustrative and educational in nature. Actual results will vary, and no specific savings, financial benefit, or other outcome is guaranteed.