Is it ok to put pension before debt where I'd lose a fortune by not doing so?

edinburgher

Hi there all.

Looking for a little general advice as I'm about to start a job within the Civil Service and am able to join one of their rather tasty pension schemes. This isn't a debt help thread, although it is related.

Many of the threads on these forums seem to suggest paying debts before all other financial concerns, but other articles (including some here and on the Motley Fool), warn of the dangers of taking a pension break.

To cut a long story short, I owe c. £4,500 and am paying it essentially tax free (charges are negligible) over the next 30 months or so. This is timed to coincide with the removal after 6 years of my one and only default notice and I don't really feel the need to do so sooner (no pressure from creditors as I've been paying them back regular amounts for three years now).

My new job pays just over £23k and the monthly payments will be c. £54 (in real terms, allowing for tax relief). My employer will pay another £359/mth into the account. If I *don't* make these payments, I will be able to pay off my debts in 23 months. Am I right in thinking that I'd be much better off amassing a pension pot of c. £10k in the same period and leaving the debts to be paid off over the originally planned 30 months?

dunstonh

Many of the threads on these forums seem to suggest paying debts before all other financial concerns,

Too simplistic. Short term expensive debts are often worth clearing first but long term cheaper ones are not. You also have to consider the benefits lost on alternatives vs what you would save by clearing the debt.

Am I right in thinking that I'd be much better off amassing a pension pot of c. £10k in the same period and leaving the debts to be paid off over the originally planned 30 months?

Yes.

edinburgher

dunstonh wrote: »

Too simplistic.

I do agree with you, just wanted to see whether anyone would play devil's advocate and point out terrible flaws in my logic

JayZed

Your logic is definitely not flawed. Make the pension payments.

MrMicawber_2

I'd go for the pension. It's gold plated, you debt seems well under control - and a bird in the hand etc. You might be able to increase your debt repayments when you get a pay rise.

edinburgher

Thanks for the feedback guys - it's good to have people agree with what I'd thought was a sensible course of action. Sometimes when you've been paying off debts for quite a while there's a tendency to be overly emotional about them and not look at the bigger picture.