2020 has proven to be a difficult year in more ways than one.

The coronavirus pandemic in particular has shone a light on the many economic disparities in America and has left millions of Americans struggling to make ends meet. Many have found themselves tapping into their emergency savings — or worse, wishing they had some. 

On top of this, 34 percent of millennial credit card holders said that they had fallen further into debt as a direct result of the pandemic, according to a May CreditCards.com survey, a sister site of Bankrate.

Juggling debt and worrying about building your savings at the same time can really weigh on a person. While there’s no right answer for everyone, here are scenarios for when each choice – paying down debt or saving – makes more sense.

When to make saving priority 

There are a number of good reasons to save first and pay down debt later.

Some of the top reasons include:

  • Debt with a very low interest rate
  • Access to an employer 401(k) match program
  • No emergency savings

If you have a credit card or other debt with a very low interest rate, it may make sense to save first, says Melissa Joy, a certified financial planner and founder of Pearl Planning, a financial planning and wealth management practice in Dexter, Mich.

Another situation where it makes sense to save before paying off debt is if you have access to a retirement savings plan through your job, especially if there’s an employer match available. Try to contribute at least enough to get the maximum employer match. If you aren’t doing this, you are effectively turning away free money.

And putting off saving for retirement until you are debt-free could cost you your most valuable asset: time. With compound interest, even small contributions to your retirement plan can grow significantly.

However, the top reason to make saving a top priority over paying down debt is to build your emergency fund. Without some money saved up, you could simply wind up adding to your credit card debt in order to pay for an unexpected car repair or a trip to the emergency room.

“If you don’t have any savings, focusing solely on paying debt can backfire when unexpected needs or costs come up,” Joy says. “You might need to borrow again, and debt can become a revolving door.”

What could go wrong? Well lots of things, especially now. The importance of this fund has been highlighted in the age of coronavirus: 23 percent of Americans’ said their biggest financial regret during this pandemic was not having enough emergency savings to weather the crisis in a June Bankrate survey.

Saving first – and building up a decent emergency fund – could spell the difference between weathering tough times and winding up in bankruptcy court.

How much to save

Experts recommend building an emergency fund of three to six months’ worth of expenses and stashing it in a high-yield savings account. Some even recommend putting enough cash in the bank to be able to pay your expenses for an entire year.

But you have to start somewhere. Aaron Graham, a CFP with Abacus Planning Group, Inc. in Columbia, S.C., suggests starting first with a goal to cover a single month’s expenses.

“There is no excuse for not saving for these emergencies,” Graham says. “It’s not a question of if they will happen, but when; plan accordingly.”

While you are at it, shop around with different banks in order to get the best possible rate on your savings.

Saving in the age of coronavirus 

For those who are fortunate to still have an income and the ability to work from home, this could be a great time to build your savings.

“Now that Americans are spending more time at home, they should consider their new patterns. Take a look at cell phone and cable bills and think about whether you need to adjust your plan to avoid overage fees,” says Lindsay Sacknoff, head of consumer deposits, products and payments at TD Bank. “There may also be bonus services you’ve previously been paying for that can be reconsidered now that you have more time at home, like a home cleaning service or babysitter. These expenses can now be cut out from your budget so you can save that extra money.”

On the other hand, if you are facing a reduced income then you may want to reach out to your lenders and providers to discuss temporary payment relief options.

“It can be easy to assume that whatever amount appears on your monthly bill is set in stone, and for some municipal utilities like water and electricity that may be the case,” says Tony Wahl, a credit and loan expert at Credit Sesame in Mountain View, California. “However, sometimes subscription services like telephone, cable and internet service can be negotiated. This can help prioritize your bills and free up some of your available cash to be added to your savings.”

Interest rates are very low right now, which typically means two things: people don’t have as much incentive to save, but they do have more incentive to buy or get a loan. However, you shouldn’t let these low rates discourage you from saving because if there’s one thing we’ve learned from the coronavirus crisis, it’s that hard times come when you’re least expecting them — prepare for that next emergency now.

When to prioritize debt repayment 

When you have high-interest consumer debt, paying it down first can help you solve ongoing problems with managing your money.

You’ll get a guaranteed return by cutting your interest payments. It’s typically more than you’d earn in the stock market and definitely more than you’d earn in a savings account.

To get started with repaying your debt, here are four things to take a look at:

  • Calculate your expendable income (what’s left after taxes, bills and food)
  • List all your regular expenses (even if they’re periodic) and see if there’s anything you can eliminate
  • Create a budget based on that number and include paying down debt as a significant part of the equation

It also helps to identify what your financial goals are, so you can prioritize them in your budget. In this case, we’re assuming that paying off debt is your number one priority. By accounting for a monthly repayment in your budget, it will better ensure that you still have money leftover for necessities.

Another option to look at is a credit card balance transfer. This can allow you to consolidate all of your credit card debt onto one low-rate card and save you money on finance charges.

Tara Alderete, director of education and community at Money Management International, says that it usually makes sense to prioritize debt reduction, but there are exceptions.

“If you already have adequate savings in your emergency fund, you may want to focus on quickly eliminating debt,” Alderete says. “However, if you find yourself making only minimum payments on debts with extremely high-interest rates, those debts may be causing you to lose money and preventing you from achieving your overall financial goals, and you may want to focus on paying off that costly debt.”

As Alderete sees it, an important part of building a budget is focusing on your priority expenses first, so that you can free up money to put toward a debt reduction plan while hopefully still being able to contribute to an emergency fund.

When deciding whether to pay off tax-deductible debt versus saving, don’t worry about losing a tax deduction if you pay off the debt. The deduction is probably worth less than the annual interest you would have paid on the loan.

The ideal approach

The best solution could be to strike a balance between saving and paying off debt.

You might be paying more interest than you should, but having savings to cover sudden expenses will keep you out of the debt cycle.

Additionally, having sufficient savings provides peace of mind. Some people are unlikely to feel at ease with any strategy that causes their savings to fall below a certain level. For them, saving and paying down debt at the same time might be the best approach.

“Every savings vs. debt situation is case by case,” says Aaron Clarke, a wealth advisor at Halpern Financial in Ashburn, Va. “If a client has surplus cash flow, the best thing to do is ‘walk and chew gum’ – paying down debt and saving at the same time.”

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