Back to top

How to Prioritize Debt and Save Money in Your 20s

Published: February 2019

In the early years of your adult life, debt can add up quickly. From paying back student loans to purchasing your first car, you may find that expenses are adding up to more than you have in your checking or savings account. For this reason, some people turn to credit cards or personal loans in their 20s to help with extra expenses.

While you likely would prefer not to carry debt, if you do have to take on loans, it’s important to prioritize paying off your bills and saving money. Following these tips may help you find ways to accomplish both.

A young woman is sitting on a living room floor with paperwork and a laptop.


Get the protection you need and the peace of mind you deserve with Allstate insurance.

Get a term life quote Find an agent

Pay Off Credit Card and Loan Balances

Credit cards or loans may help with those extra expenses in your 20s, but the charges can add up quickly. And, you probably know that if you don’t pay off the balance each month, you’ll likely owe interest that will begin to cost you more over time. Below are a few strategies that may help you start paying off debt.

  1. The “snowball method”: U.S. News and World Report (U.S. News) suggests using this method if you have balances on multiple credit cards. This method would require you to remit the minimum monthly payment on each credit card, while putting leftover income towards the smallest account balance — and repeating this process once the smallest balance has been paid off.
  2. The “avalanche method”: U.S. News recommends this method if you’re aiming to save money on interest payments. You’d focus on paying down the account with the highest interest rate first, and repeating this step once it’s paid off.
  3. Pay off accounts with a 7 percent interest rate or higher: Forbes suggests this strategy if you have a few high-interest loans and are trying to determine whether you should use extra income to pay off debt or invest. Paying off high-interest loans may actually help you save more money in the long run by avoiding interest charges when compared to what the money may have earned if it were invested instead, says Forbes.

Finally, if you receive any holiday or performance bonuses at work, U.S. News says it may be a good idea to put the extra income towards paying off your debt.

Save for Retirement

Just as important as prioritizing debt is saving for your retirement. In fact, Entrepreneur magazine says not starting a retirement fund early enough, and not putting enough money in it, are some mistakes you should try to avoid in your 20s. This is because the earlier you start a retirement savings account, the longer it will have to earn interest. You may want to consider using a retirement calculator first to see if you’re on track with your personal retirement goals. If you find that you’re behind, but can’t afford to put a larger chunk of your earnings towards retirement, consider increasing your contributions by 1 percent each year to grow the account slowly over time, says Forbes. You should also ensure you are taking full advantage of your employer’s match on any applicable retirement accounts, if they offer one, to ensure you aren’t missing out on “free” contributions towards your retirement.

Start an Emergency Fund

When unexpected expenses come up, having an emergency fund will come in handy — it may help you avoid putting any extra expenses on a credit card. Before deciding how much you’re going to stash away, take a look at your lifestyle and career, says CNBC. Do you have a steady-paying job, or are you a freelancer? If your source of income can vary on a regular basis, it may be a good idea to save a little more money compared to someone who has a guaranteed amount of income each month. The Balance recommends having an emergency fund equal to at least three months’ worth of expenses, but says six months of expenses is more ideal if you have a family or a job with high turnover.

Your 20s are an exciting time as you make your way into adulthood. There are many new expenditures that may arise, so it’s a good idea to create a financial plan that works for your lifestyle — keeping debt elimination and savings goals near the top of your list. Setting these goals early may help you take better control of your financial situation, not only today, but into retirement.

Related Resources:

Our pages are filled with helpful tips and information about the topics that most of us face in our everyday lives. We focus on safety and maintenance issues with regard to your home, auto, apartment, motorcycle, boat, small business, finances and more. Please recognize that a particular tip may not be effective in every circumstance and that taking preventive measures cannot guarantee any outcome. We encourage you to use your own good judgment about what's appropriate for you and your property and always consider safety.
ECC Monitor: OK