1. News
  2. /
  3. Business

Dear Penny: Should I Invest My $10K Savings or Use It to Pay Off Debt?

Consider none of the above, the advice columnist suggests.
[Getty Images] [JIMKRUGER  |  Getty Images]
[Getty Images] [JIMKRUGER | Getty Images]
Published Aug. 26, 2019

Dear Penny,

I have $8,400 left on my student loans and $21,000 on a vehicle loan. I'm 30 years old, single, do not own a home and have $52,000 in my 401(k). I make around $58,000 a year and have around $10,000 in savings.

Should I use the $10,000 to pay off my student loans or knock down my vehicle loan, or use the $10,000 to invest and gamble on a higher return over time?


Dear K.,

My vote is for “none of the above.” (Wait, that is an option, right?)

Assuming the $10,000 is your only non-retirement savings, I’d suggest you keep it as liquid savings.

I know, I know: When you’re paying interest on debt and you have investments that are (hopefully) gaining value, your pile of cash can look a lot like your lazy relative who hogs the couch and the remote but doesn’t contribute. And you want to scream: Just. Do. Something. But then when you really need something, they come through.

Cash doesn’t do much in the way of earning interest, but you need it as a lifeline in case of an emergency. Generally, the recommendation is to have at least three to six months’ worth of expenses saved in a rainy-day fund.

Consider that if you’re earning $58,000 a year, $10,000 might only replace three or four months of your net income if you were temporarily unable to work or you lost your job — so $10,000 is probably the minimum you should have sitting around in cash.

The good news is, it sounds like your finances are in pretty good shape. Your debt isn’t insurmountable, and you’re the rare 30-year-old who has nearly one year’s salary saved for retirement — which is the recommended retirement savings based on your age.

You’re also relatively young, you’re single and you don’t own your home — and while we all need to be prepared for emergencies, your odds of a major unexpected expense are probably lower compared with, say, a 55-year-old with a family of five who owns a home with a roof that hasn’t been replaced in 40 years.

So provided that you’re in relatively good health, your check engine light isn’t on and you don’t have reason to believe your employer will replace you with a robot soon, I’ll give you my blessing to keep your emergency fund at the lower end of the three-to-six-month range.

That means if $10,000 would cover at least three months of your expenses, I won’t bug you to keep socking away more in your emergency fund for now, and you can start putting any monthly excess toward one of your financial goals.

Personally, I’d opt for using whatever extra money you can to pay down your debt over investing. Sure, the interest on your debt may be lower than the potential gains in the stock market. But as you put it, investing would be a gamble — and with the stock market’s volatility and renewed concerns about a recession, you’d need to be prepared for the possibility that your investment could tank, at least temporarily.

By paying down debt, you’re getting guaranteed returns in a sense, because you’re guaranteed to save on interest, and you’ll also lower your monthly expenses, eventually.

As for the $10,000, you can still put it to work a little by putting it in a high-yield savings account or money market account, which can typically earn you 2% interest or more — unfortunately, a far cry from the 7% or 8% returns we’re often told to expect from the market on average, but still better than the 0.09% the average savings account currently pays.

Just remember that this $10,000 is there for an emergency. Keep it in an account that’s separate from any money you’re saving for a big goal, like a home purchase. Your goal with this money is to look but don’t touch — unless absolutely necessary.

Robin Hartill is a senior editor at the Penny Hoarder and the voice behind Dear Penny. Send your questions about saving money to


  1. A "for sale" sign beckons Friday along Sixth Avenue N in the Kenwood area of St. Petersburg.
  2. Florida is better positioned than before the Great Recession, economist says.
  3. A rendering of the new Ulta created by Hennon Group Architects and included in the permits for the building filed with the City of Tampa.
  4. A rendering of the downtown Sarasota building that holds the office of Retirement Wealth Specialists.
  5. The Oaks Estate, a mansion owned by Lazydays RV co-founder Donald Wallace and his wife Erika. The property is a French-Normandy country-style gated manor build on Lake Thonotosassa listed on the market with an asking price of $17.5 million. It includes a main house, 2-story guest house, garage for up to 20 cars, workshop, pool house, gatehouse, horse barn with grazing pasture, indoor and outdoor pools, 2-story boat house, go-cart track, bowling alley and jogging trail pictured on Wednesday, Feb. 19, 2020 in Thonotosassa.
  6. It's not a bad time to be looking for a job. [Scott Keeler, Times]
  7. A burgeoning private insurance market looks to relieve pressure from the National Flood Insurance Program. Pictured is water from heavy rain in August 2019 on Snell Isle Boulevard NE. [Times (2019)]
  8. A pair of wood storks, left, and a large group of white ibis rest and feed in a wetland area off Loop Road in the Big Cypress National Preserve. Florida is home to more wetlands than any other state except Alaska. [DOUGLAS R. CLIFFORD | Times (2008)]
  9. People fill Community Cafe as drag queen Viktoria Sommers reads a Dr. Seuss book to children during Drag Queen Story Hour.  [Times (2019)]
  10. Tampa Electric Co. announced plans to double its solar capacity over the next three years.  Pictured is a Tampa Electric worker installing a solar panel on the roof of the Tampa International Airport economy parking garage in 2015. [James Borchuck | Times (2015)]
  11. Wawa and Coppertail partnered to create a craft beer that will only be at the gas station's Florida locations.
  12. The Publix at Channelside (pictured) opened in late August. Now the new store at Westshore in Tampa will open later this month. [OCTAVIO JONES   |   Times]