I have $25K in credit card debt, but $0 saved — should I prioritize digging out of debt or building a safety net?

Core Insights - The article discusses the financial dilemma faced by individuals with significant credit card debt, particularly focusing on the case of Alice, who owes $25,000 across her credit cards and is considering whether to prioritize paying off her debt or building an emergency fund [4][5]. Group 1: Credit Card Debt and Interest Rates - The average interest rate on credit card debt is significantly high, averaging 21.16% as of May, which far exceeds the return on investment from a high-yield savings account [2][5]. - Credit card debt in the U.S. reached an all-time high of $2.21 trillion in Q2 2025, with the average American owing $6,492 on credit cards [5]. Group 2: Financial Strategies for Debt Management - Alice's instinct is to pay off her credit cards first, which has advantages such as improving her credit utilization ratio and credit score, making it easier to secure loans in the future [1][5]. - There are two main strategies: focusing on paying off credit card debt first or building an emergency fund. Each has its pros and cons, with the former potentially leading to significant interest savings and the latter providing a safety net for unexpected expenses [8][11]. Group 3: Emergency Fund Considerations - If Alice opts to build an emergency fund first, she may save three to six months of living expenses, but this could result in losing money due to the high interest on her credit card debt compared to the lower interest earned on savings [8][9]. - A suggested approach is to save a mini emergency fund of $1,000 before focusing on debt repayment, allowing for minor emergencies without accruing more debt [12]. Group 4: Practical Steps for Debt Reduction - To expedite debt repayment, Alice should identify areas of overspending, create a strict budget, automate payments, and consider using windfalls to pay down debt [15]. - Two methods for debt repayment are highlighted: the Snowball Method, which pays off smaller debts first for motivation, and the Avalanche Method, which targets the highest interest debts first to save on overall interest [15].