Should You Pay Debts First or Save

With rising interest rates, paying off debt can feel like it has to be your only financial priority. But should you not be saving for those unexpected expenses that keep popping up? How do you build financial resilience in these challenging times? 

Savings versus paying down debt, it’s a balancing act. Licensed Insolvency Trustee, Mary-Ann Marriot talks about strategies you can use to do both at the same time.

He also discusses:

  • Finding out and tracking the expenses you are using credit for
  • Typical savings objectives divided into 3 categories 
  • Advantages of using multiple bank accounts 
  • Common mistakes we make when saving
  • Options to consider when your income is not meeting your expenses

Licensed Insolvency Trustees are federally regulated and governed by the Canadian government. You can be assured you are receiving the best unbiased advice from these debt professionals.

Wayne Kay 00:04
Saving or paying off your debts? Which one do you do first? Our topic today on the Debt Matters podcast, where we help Canadians find solutions to their debt withLicensed Insolvency Trustees from across Canada. 

I’m Wayne Kay, and today we’re going to talk about which do you do first. We often say you need to pay off the debt, but you also need to save. Tips on how to pay off that debt faster or more effectively. What’s the best way to go about saving money, and how much should you allocate to each?

To help us out with this, Mary-Ann Marriott joins me from Allan Marshall & Associates, Licensed Insolvency Trustee in Nova Scotia. Thanks for being on the show again, Mary-Ann.

Mary-Ann Marriott 00:47
My pleasure, Wayne. Thanks for having me.

Wayne Kay 00:49
Well, we had a great discussion last time you were on regarding paying off your credit card debts. And a lot of people always hear, we got to save, save, but we also hear we got to pay off our debt, debt, debt. Oh, it’s so confusing. Help us with this, please.

Mary-Ann Marriott 01:06
It really is. And there’s a few reasons that you would do either or I’m personally a fan of doing both, and I’ll tell you why. Because if you’re trying to pay, let’s talk about debt. So you have debt probably because you don’t have an emergency fund or savings to deal with things when they come up. You’re relying on your credit to deal with that.

And then you get into this perpetual cycle where now you have less money to do everything, and so you rely on your credit cards. Now you have less money, and you rely on your credit cards. 

So you get into this cycle that you can’t get out of. If you don’t have any savings, it’s really hard to break that cycle. And I’m going to assume for the purpose of this podcast and I’m assuming this also knowing, because I see this, that for most people, they can actually save something.

They just haven’t either made that commitment or figured out how to do it yet. So to me, saving is really an integral part of this.

Wayne Kay 02:03
Okay, so they come into you and they say, here’s the situation we’re in, because you always do the free consultation, initial consultation. And so you start talking to them about saving, and they kind of look at you like, well, why would I do that when I’m paying all this debt at the high interest rates?

Mary-Ann Marriott 02:22
Yes, I do get those looks, and I do get the questions. And sometimes that will prompt me to have a discussion with them around what kind of things are you using your credit for? 

Then I will inevitably get things like car repairs, Christmas, maybe some medical things that came up, which will give me the opportunity to have the discussion around these are things that you’re still going to have to pay money for. They’re not going to go away. 

So let’s talk about how you can start to build some kind of a cushion for those while you’re paying off debt, which I think kind of gets people thinking about it a little bit differently.

Wayne Kay 02:59
Okay, so what are your tips then for paying off this debt a little bit faster or more effectively?

Mary-Ann Marriott 03:05
I think there’s a couple of them. One is to figure out what you need. And some people just don’t really pay attention to the cost, especially if they’re not planning for it. So we’ll just use car repairs for example. 

I’ll often ask, how much do you spend on car repairs a year? Most people don’t know the answer to that question. So how can you plan for an expense if you don’t know what it’s costing you? 

I will tell them that if they get their car serviced at the same place the next time they’re there, ask for a printout for the last year and look at what they spent. And that’s their starting point.

Then the other side, which is, how can I do this? Obviously this is going to lead us to a cash flow situation or budget situation, looking at their cash flow. And honestly, most of the time there is some tweaking that can be done to start to put some money aside. There are rare circumstances where there really isn’t. And then we have to talk about increasing income more than talking about putting money into savings.

Wayne Kay 04:06
Well, those darn cars, they do cost a lot. And the repairs these days and just maintenance is wild. And then you add in all the other expenses with it as well, I can see how that happens. So then we have to look at the best ways to maybe save some money.

Mary-Ann Marriott 04:24
And when we say save, I should just point out that there’s three different things you will typically save for. So one is what I call occasional expenses or things that are going to come up anyway, which we just talked about. So car repairs, vet costs. 

The second level would be saving for goals. These are things that you want to do, like go on a vacation or pay off your mortgage faster, renovate your house. 

And the third piece is saving for emergencies. And emergencies really are things that you don’t anticipate. So I always focus on the things that you know you’re going to have as expenses first because that’s always the priority. And really it’s working it into your spending plan.

Typically I’ll walk a person through a really simple process where they take their income, they take all their fixed expenses –  they’re the ones you have to pay. You don’t have a choice through your mortgage, your car loan, your insurance, et cetera. 

And then let’s put aside an amount of money for the things you need money for that you’re going to have regardless. They’re going to come up. You can’t argue they’re not going to your car repairs, your vet costs, medical and then what you have left is what you have left.

You need to figure out how that’s going to last you for gas, groceries and everything else. So it’s kind of a little bit of a wake up call to look at what this looks like and then can I do it? And then depending on that answer, we take the next step.

Wayne Kay 05:48
So we’re using the old fashioned pen and paper because it works amazing to actually write that down, figure out what those costs are. And I guess you would just go back. I mean everything is pretty much debited these days through your account.

So you would start adding there. I guess that’s the first place to start.

Mary-Ann Marriott 06:07
Yes, absolutely. And I even go so far as to suggest that you have at least two accounts but even better three. So your money goes into one and the only thing that comes out of that are your automatic payments. Everything that comes out automatically and then you transfer your spending money to another account that you spend out of.  

I’m a big fan of a no fee bank account for that because you don’t pay any fees depending it’s not depending on transactions. So you’re basically segregating your money so you can’t spend what you need to leave in there for automatic payments so you don’t risk missing those important payments.

Wayne Kay 06:41
That’s a great idea.

Mary-Ann Marriott 06:44
Yes, it works really well.

Wayne Kay 06:45

Mary-Ann Marriott 06:47
A lot of people just don’t think about that and I think the younger generation – just no one says open two or three accounts so everybody tries to run everything through one account and unless you have a really good skill set there, it doesn’t work so well.

Wayne Kay 07:01
Yes. And the traditional banks, though, charge you so much for every time you’re using your debit.They give you like twelve free and then you get service fee to death.

Mary-Ann Marriott 07:13

Wayne Kay 07:14
Other options? You’re saying look at the different banks.

Mary-Ann Marriott 07:18
Yes. No fee bank accounts are great. If you want to stick with a brick and mortar bank for your main banking, go ahead. Your pay goes in, your automatics come out. You don’t spend out of it. So what do you have? Maybe five, six, seven transactions coming out of that account.

You can have their lower fee and then everything else gets transferred to a no fee account. You spend out of that, you don’t have to keep track of your transactions.

Wayne Kay 07:40
Right. Never made sense to me because you’re already making a fortune on that 21% you’re charging on my credit card if it’s not paid off and then you’re charging me to use my own money.

Mary-Ann Marriott 07:53
It’s just my own money. Agreed. Totally.

Wayne Kay 07:56
Okay. We have got to rise up.

Mary-Ann Marriott 07:59
Yes we do.

Wayne Kay 07:59
I feel a movement coming, don’t you?

Mary-Ann Marriott 08:02
Yes I do.

Wayne Kay 08:05
So what are some of the common mistakes that you see people making when it comes to saving?

Mary-Ann Marriott 08:09
I think the most common mistake is –  I’ll save what’s left. There’s very seldom anything left. You have to make it a priority. 

And the second one is trying to keep the money in all one account because you lose track and you just spend outside of that. 

Then the third one, again, is just not realistically, looking at what do I need to save money for? And not having that information. And it’s really easy to get.

Really, there’s five main things that cost you money: house, car, kids, pets, and medical, your health. That’s it. Those are the five. You can pick and choose the ones that apply to you, and you can pretty easily gather the information on those and figure out what you anticipate needing for those in the coming year.

Wayne Kay 08:54
So let’s build kind of an imaginary budget, if you will, so you know exactly what your expenses are going to be. So that would be one. The second would be the possibility of expenses, and then your third would be kind of on the savings side number wise, do you say, okay, let’s just magically pick a number. 

There’s $800 left after you’ve done all of your expenses and you have all this debt. So do you take $200, put it into savings, and then put $600 into the debt? How do you figure out those numbers?

Mary-Ann Marriott 09:34
That one might vary a little bit. I mean, the first thing you’d have to look at with the debt are, what are the minimum payments? You have to at least be able to make the minimum, which is really just going to maintain the debt and maybe pay a little bit off, and then is there enough to put in savings. 

So the issue comes when there isn’t enough to do that. There clearly is not enough to put away for the things that you anticipate coming up and to pay all your minimum payments on your debt. And that’s where we then have to look at the other options. 

Okay, let’s look deeper at your debt. What do you have? What are the interest rates? Who do you owe? What can we do? Can you do a debt consolidation, or do we have to do a proposal or Bankruptcy to get that piece in line so we can get the budget in line? 

I had a gal in here I was talking to this week, and my concern for her is when we put the numbers on paper, it didn’t work. And I’m like, I can do a Bankruptcy or proposal, but I don’t even know how you’re going to pay that if you don’t make some changes to your budget. So I’m not interested in putting a band-aid solution on this. I want something that’s going to work for you going forward. 

We had to have a much deeper conversation around her expenses and what she was willing to give up or let go to make this happen.

Wayne Kay 10:44
And sometimes you don’t have a choice. You just simply have to get rid of some of the fancy things.

Mary-Ann Marriott 10:50
Yes. If you come to me and your income is $3,000 in the month and your expenses are $3,200, and that’s before your debt payments, there’s no magic in the world that’s going to fix that. We’ve got to fix the cash flow first, then we can tackle the debt.

Wayne Kay 11:05
And we’re seeing that more and more, aren’t we, across the country?

Mary-Ann Marriott 11:08
We really are. It’s not a good time financially. I mean, I don’t know about you, but I certainly lived through these high interest rates many, many years ago, and forgot all about them. It’s been that long.

We got comfortable with the low rates, but here we are back in these high rates again and the cost of living, and quite honestly, everybody’s budget is feeling the pinch, no matter your level of income.

Wayne Kay 11:32
But it’s amazing how now when I go shopping, it’s only things, items that are on sale.

Mary-Ann Marriott 11:39

Wayne Kay 11:40
I make sure I’m watching it as much as I possibly can.

Mary-Ann Marriott 11:45
Yes. I love those 50% off labels stuck on packages right now.

Wayne Kay 11:51
Right. Or I’ll find clearance meat and that goes right into the freezer. You need to be looking at it that way. But do you find that when you work with somebody and they are not saving any money, they still have high debt. All of a sudden they spend some time with you and suddenly they’re starting to see the debts coming down and they see the savings going up. What is that like emotionally for them?

Mary-Ann Marriott 12:19
Oh, my gosh. There’s really a shift in thinking, and I hear that from a lot of people, how much they didn’t realize how stressful the debt was. We think that debt gives us freedom. It doesn’t, and then it’s gone, and all of a sudden you have some breathing room and the fact that you can now plan for Christmas or plan for your car repairs. It’s just a completely different feeling than dealing with them when they come up by incurring debt, going into debt or not paying expenses. It’s very liberating.

Wayne Kay 12:52
I would imagine it is. But there’s a lot of people. In fact, a friend and I were discussing savings and investments yesterday and he started yawning. He said, I get tired when I even think about it. I just want somebody to do it for me. I can’t even think about it. Right.

Mary-Ann Marriott 13:11

Wayne Kay 13:12
It was like, oh, well, here, I’m going to help you and make it really simple for you. And that’s just how he and his wife were. They’re like, we can’t create strategies or spend the time because it’s so stressful for them that they just get tired and their body physically shut down.

Mary-Ann Marriott 13:29
Yes, absolutely. There are some people that when you start dealing with numbers like that, it’s incredibly overwhelming. And that’s what I really like about the three account system, because it takes a lot of that out of play. Basically, this one account, all I need to do is figure out what needs to go in there to cover the automatics, and then I figure out how much I’m going to set aside to deal with stuff that comes up.

You can test that and see if it works or not. And then whatever’s in this account, that’s what we can spend. So it’s less budgeting, less watching numbers, less adding things up, and it just puts some money in different places, so it takes some of that stress out of there.

Wayne Kay 14:05
That’s a great strategy. I was also adding the numbers of our current life versus what it was like maybe 15 or 20 years ago before the cell phone world was here.

And just the expenses that families have now, because kids do need a cell phone. I mean, most of them have them. But you add that into your family budget, it’s expensive.

Mary-Ann Marriott 14:30
Yes, it’s huge. And just cable and Internet. I remember I’ve been in this industry since the mid eighties, and I remember doing budgets with people. Phone was $35 a month. Cable was, I don’t know, 50. There wasn’t even the Internet.

It was just such a small percentage of your household budget, and it’s not anymore. It’s huge.

Wayne Kay 14:52
Completely different. So if somebody’s struggling, of course they can reach out and ask for some advice. But what is your final advice regarding the debts and the savings?

Mary-Ann Marriott 15:03
I think that for me, I like to catch people early. So if you’re just at the point where you notice you’re using credit to cover expenses that are coming up that are occasional yearly, every once in a while, that’s the person I want to talk to. Because I want to get them on a path where they don’t have to talk to someone like me about a Bankruptcy or proposal. 

But obviously, if you’re in that situation, don’t hesitate to reach out, because that’s part of what we do, is look at the whole, make setting money aside for things that come up occasionally a priority. However you do that.

Wayne Kay 15:41
Great advice and always a pleasure. Thank you so much for being on the show today.

Mary-Ann Marriott 15:46
Absolutely, my pleasure. Thank you.

Wayne Kay 15:48
My guest today, Mary-Ann Marriott. You can learn more or schedule that free consultation with Allan Marshall & Associates, Licensed Insolvency Trustee by going to the website

That’s it for another edition of the Debt Matters podcast. Make sure you subscribe wherever you get your favorite podcast from. And of course, for more information, you can always check out Thanks for listening.

About Mary-Ann Marriot

Mary-Ann Marriot has been working in the insolvency field for over 25 years. She received her Chartered Insolvency & Restructuring Professional designation in 2005 and her Licensed Insolvency Trustee license in 2014.

Mary-Ann is passionate about helping people become financially literate. She feels honoured to be able to help individuals discover solutions to overwhelming situations and find peace-of-mind in their lives. 

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