Discuss: Is it worth building savings while you're paying off your debts?

Buffythedebtslayer

I save for Christmas, £25 each month and £1 a month to my ISA.

I used all my saving when I first came to this site - paid them towards a CC bill.

If I can do Christmas cheaper the remainer will go to my debts. I think its a good idea to get into the habit of saving whilst in debt, it has certainly helped me plan and be more organised. If I hadn't done this Christmas would be on the cc and the cycle would start again

xxx

tiff

Theres a financial guru in America called Dave Ramsey who recommends having $1000 dollars as an emergency fund while you have debt. TBH the way things are I think its sensible to have something to fall back on and not rely on credit. Not a huge amount though.

Johnny_Chaos

daily wrote: »

If you had no ISA and no cushion, would you borrow £300 from your credit card to put into an ISA (effectively what you are doing)?

Either you do not understand my post, or you like being deliberately contrary on internet fora.

I am not suggesting borrowing £X from a credit card and putting it in a savings vehicle.

I am suggesting that, as you continue to pay down your debts (and make this your priority), putting away a small amount each month for an emergency is not a bad thing.

These two things aren't quite the same.

How would someone cope if they urgently needed a couple of hundred quid and they had no credit facility? In the current climate many card customers are having their available credit removed.

SueP19

I would just like to say I have received a PM from Daily and I don't think his motives are contrary.

He is correct in the advice he has given and if you read the link he provided, it will explain very well the effects of having savings v debts.
BUT the other side of the coin is also very valid, in this day and age when banks and credit card companies are removing or reducing limits, it could be that it is fortuitous to have a small emergency fund. Upon further reading of the article I would like to quote this from it

"The right thing to do is still pay off your debts with savings, including your emergency fund. Yet don't cut up your credit cards, it's important to keep the credit available in case of a substantial emergency (and substantial means just that i.e. your roof falls in or you can't feed the kids; not a new plasma TV)."

"So overall, whether an emergency happens or not, the best result is to pay off your debts with your savings. The only time to beware of this is if you're not assured of being able to reborrow the cash. Usually with credit cards it's fine, as they're a readily available source of credit, but if your debt is a personal loan, there's no guarantee you will be able to get another – in which case an emergency fund is sensible."

Now in the case of many people here, including myself, our credit cards are no longer available to us. So I would interrprut the above to say that an emergency fund would be a good idea, WHEN I SAY THAT I AM ONLY TALKING OF £200-£300 just wanted to make that clear.

For those that are reading this who have an emergency fund larger than this and debts, I suggest you visit the snowball calculator

Re-do your snowball with your savings being taken off your highest interest rated debt and see how much interest you could save...........................only then can you see what true effect you are having by stashing money away.

I hope my posts have not been miss interrupted and given the wrong idea to anyone

BabyBetty

flying_fresian wrote: »

I have about £6400 in debts, and £600 in savings. Why?

My loan is on a fixed rate, and is the only debt I have left. My savings are going to be used to pay off the loan early as it doesn't allow overpayments. However, I will be able to use these savings if something goes wrong in the house or I have an unexpected event to pay for (My friend just announced she's getting married this September and I now have to pay for travel, accommodation etc as I'm a bridesmaid)

I will use the savings to pay off the loan, but I like being in the habit of saving and now know that when the loan is paid off the monthly repayment won't just be swallowed up in silly spends but will be saved properly.

Also, I feel that by saving a lump sum it is teaching me not to rely on my credit cards/overdraft for emergencies.

F_F, I agree with you. I have two major debts which are fixed payments which I can't overpay on but can clear early so am saving towards paying these off by Christmas 2009.

The other reason for saving is that as a contractor, I go where the work is and contracts can be from 3 months to a year. Just knowing that I can continue to make fixed payments whilst looking for my next contract is a relief.

The credit cards that I have (except 2 at 0%), have been closed. I have experienced the rates changes both increases and decreases in rates. I saw Martin's programme on credit rating and made the decision to close all those not being used.

I also have to save towards a tax bill which is due in November.

Honestly and truly one shoe does not fit all and my aim is to make sure that I have enough to cover an emergency and not have to borrow on a credit card. This is one less worry about paying somthing back. I don't plan on doing any more borrowing at all unless it is for a mortgage.

At the end of the day it is an individual choice based on your circumstances.

JOANNESAPHINE

The £300 in my ISA has come directly from my wages. My debt is interest free only, debt left now is sofa loan with DFS on an interest free basis. I would pay a debt that was incurring interest first before saving - hope that clears up my position as I see what you are saying.

Lottebear

I agree with you, despite the advice of debt costing you money we are doing the same.

My husband has a loan which he is paying off, his debt not mine. So I don't think my money should go towards this.

Secondly doing a bit of both means, we can afford a hoilday/night out every so often with out using any more credit.

Thirdly as soon as he is debt free, we would like to think about childern, not have to save even more to fill the pot up.

However once my CC cards come down, I will pay off a lump sum and hopefully when the loan comes down we will do the same, therefore us the half and half approach works.

SarahNeedle1872

I'm another person in debt with a small amount of savings.... when I say small savings, I mean less than £500 in my 'monthly savings' which is for car tax, cars ins, car maintenance, birthdays, christmas, holiday, clothes and for use as an emergency fund. I also have an overdraft that I can call on if need be, but would rather use the cash first.

I think it is all too easy (as another poster has commented) to borrow the money from a CC and say that it'll be paid back ASAP, and then not pay it back.
I know what I am doing totally goes against what Martin recommends for people in debt, but I would not be happy if I didn't have a small emergency fund to fall back... and I think it is good to get into the habit of saving! When I am debt free, I will continue to save the majority of what I am paying towards the debt as an emergency fund and a house deposit.... I guess the 'rules' don't fit for everyone

Sx