Pay Debt v Savings or both???

Lisa1978

Hi all,

Pleased to report that now the wedding and honeymoon are over i've already managed to reduce my debts by £2k, so 'just' another approx £11k to go but i'm hoping to have all paid off in a year with working 2 jobs . i'm currently paying approx £800-£1000/month off my credit card debt (total £9k), however a friend has mentioned to me that i would be better also having a savings account and putting about £100/month in there (into a credit union or ISA) and paying £100 less on debt/month.

What are your thoughts on this? Obviously it would be great to have some savings especially as we are hoping to have a child next year however i am not contemplating that idea until debts are cleared first!!! If savings route - would a ISA be best?

I have a feeling that really i should clear the debt before saving?? I really want it paid off asap!

Thanks

LMCD

hi, hope you don't mind me giving my tuppence worth - but I personally agree with you, saving is cheating yourself I believe if you want to pay off debts... but I do have a small weekly SO for £5 a week to a credit union, I don't see it don't touch it...but to know its there is good if I really really needed cos it would be some effort for me to go and fetch it lol...I just started a diary today and I just hope that I stick to it!! x

SimbaSimon

Lisa1978 wrote: »

Hi all,

Pleased to report that now the wedding and honeymoon are over i've already managed to reduce my debts by £2k, so 'just' another approx £11k to go but i'm hoping to have all paid off in a year with working 2 jobs . i'm currently paying approx £800-£1000/month off my credit card debt (total £9k), however a friend has mentioned to me that i would be better also having a savings account and putting about £100/month in there (into a credit union or ISA) and paying £100 less on debt/month.

What are your thoughts on this? Obviously it would be great to have some savings especially as we are hoping to have a child next year however i am not contemplating that idea until debts are cleared first!!! If savings route - would a ISA be best?

I have a feeling that really i should clear the debt before saving?? I really want it paid off asap!

Thanks

I suppose if your paying £800-1000/month of your debts saving £100 isn't too much to save, but personally I'd reduce it £50 or so a month. Presumable your paying some fairly high rate of interest on your debts? Therefore every penny you put towards your debt goes much further at knocking your monthly interest down instead of earning a very low amount of interest in savings.

Thrifty_Pixie

Lisa1978 wrote: »

Hi all,

Pleased to report that now the wedding and honeymoon are over i've already managed to reduce my debts by £2k, so 'just' another approx £11k to go but i'm hoping to have all paid off in a year with working 2 jobs . i'm currently paying approx £800-£1000/month off my credit card debt (total £9k), however a friend has mentioned to me that i would be better also having a savings account and putting about £100/month in there (into a credit union or ISA) and paying £100 less on debt/month.

What are your thoughts on this? Obviously it would be great to have some savings especially as we are hoping to have a child next year however i am not contemplating that idea until debts are cleared first!!! If savings route - would a ISA be best?

I have a feeling that really i should clear the debt before saving?? I really want it paid off asap!

Thanks

With interest rates for savings as they are it's much more in your favour to get your debts cleared first...unless they are all on incredibly good, low rates of interest. It sounds like you're doing well already and have a plan...just go for it, I say

Also, can I just say that it's refreshing to me to hear you say that you want to clear your debts before having a child. Too many people, in my experience, seem to ignore their debts when their body clocks start ticking and then become indignant when you don't show them enough sympathy because they have a babe-in-arms and bailiffs at the door. In my view a solid financial base for your children is the very first and best thing you can do for them, and the sooner we see children as a privilege and not a right the better. But that's just my 2p

tbourner

It's all about interest rates. If you've got a 15% credit card to clear, or the choice to save in a 4% interest savings account, it's no brains really. If ALL your debt is on 0% transfers then you'll be better off paying the minimum payment and saving all your money in a high interest savings account, and paying it off in a lump sum when the 0% ends.

climbgirl

Pay off the debt first and then save! The interest you're paying on your debt is much, much higher than anything you'll earn on savings so you're losing out financiallly.

I know some people advocate savings alongside debt as an emergency fund (boiler breaking, etc). But if the unexpected happens, you can always spend again on the credit cards. Just make sure it is only in a true emergency!

Mowgli87

I wouldn’t bother with 'big savings'...but I put £50 a month into an easy access account so that I can cover myself if Im short one month...eg, I have to take a week of sick, I dont get paid but I will have some money put aside to pay my debts/bills.

I would put £50-100 a month (depending on what you think you can afford to not pay on your debts) away in an easy access account, but see it more of an 'emergency fund' rather than a savings account.

If you do your banking online, most banks will have savings account that you can 'connect' to them eg. I have a halifax current account, and a web saver. I can see them both on my internet banking home screen and if I need to I can transfer money immediately in a few clicks!

Clarie_2

Yup, purely on interest rates it's always better to pay off debts rather than save. Martin has a good example of why that makes financial sense, even in the case of an emergency on his site :
http://www.moneysavingexpert.com/savings/pay-off-debts

However, I would say that for foreseen annual expences (like MOTs etc) it's better to include them in your budget and save up short term for them.

Good idea to get debt free before having a child - if not least because you can take more maternity leave! and if you get far enough to pay it off, and save up to cover your costs of being off work and not bringing in income you are doing great. :-)

And if you are saving, then definitely do an ISA first - once you take into account not paying tax on it it's far and away the best way of doing it. Again the site can recommend good isas, depending on how much access you want.

tbourner

Clarie wrote: »

However, I would say that for foreseen annual expences (like MOTs etc) it's better to include them in your budget and save up short term for them.

Indeed, these should be covered in the budget plan before you even know how much you have left over for debt payments!

Firewalker

When looking at it as a 'cold hearted' calculation, yes it is better to pay off debts first, However, I found that building a 'cushion' made me feel less insecure and allowed me to focus on earning, reducing spending and paying off debt much better. So, we do both. Apart from that it seems a good way to use 20% of income to pay debts, to put 10% in savings that are not touched except for investments, 5-8% for things that 'make you feel worth it' and live on the rest.

Works for us but choices are very personal here.

Firewalker

shady63

I agree with Firewalker, it helps me when I'm all depressed about the debt, to know that we've managed to put away a small amount too. I like the sense of achievement and it makes me feel more secure and less like a failure. Being in debt is very depressing, it's nice to log into the savings account and see a decent (ish) balance, but then we're not paying interest on any of our debt, if we were, we'd possibly think twice about saving since the amount we're able to save is so small.