Save or repay a debt: how to decide
AmanaFi team · Updated · 1 min read
The answer depends on three things: do you have a small emergency fund, what does the debt cost and what is its nature. Generally you build a small cushion first, then give debts priority.
Step 1: a small cushion
Set aside about one month of essential spending. Without it, the first surprise will send you back to borrowing.
Step 2: attack the debts
Then repay in order of priority.
- Debts with interest or penalties first, because they grow.
- Debts to people whose deadline is near.
- Interest-free debts on their fixed date, without delay.
Step 3: full savings
When the high-cost debts are cleared, raise the emergency fund to three to six months of spending, then start project savings. Continuing to pay sadaqah during this time keeps balance.
Frequently asked
What about an interest-free debt to a relative?
Honour it on the agreed date, and if you are struggling, say so early and propose a new schedule. Transparency protects the relationship.
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