Throw every penny at debt or save in small pots?

Ccarter

Hi all,

I'm suddenly having a dilemma. Since aug I have thrown every penny at my debts. I have cleared one card, am about to clear my kitchen loan this month and have the last part of my divorce to pay for.

As a consequence I have not been saving anything at all. I have read on various posts that I should be saving for emergency's. Saving for birthdays and christmas. Saving for a holiday (if I was having one!). My reasoning has been i'll think about it when it comes and just get rid of the debt

SO my question is, what have you been doing? Is it best to pay less to the debts but have a little bit saved for things coming up?

I don't know what's best?!

Thank you in advance for any help

ReadingTim

Have a read of this:

http://www.moneysavingexpert.com/savings/pay-off-debts

It seems to suggest that apart from some small saving for specific events such as birthdays or Christmas, chuck everything at debt repayment. The idea of an emergency fund is pretty much discounted too, especially if you have access to a credit card. Hope that helps.

Bublin1

Or you can follow the Dave Ramsey Baby Steps (google it).
Save a cash emergency fund and then pay off debts but at the same time have savings pots for things you'll know you'll have to pay for....xmas, birthdays, car tax, clothes....whatever suits your household.

northerner999

I found my mentality changed as I got more control of my finances.
Immediately after LBM I threw everything I had available at sorting debt, cutting costs and using it all to pay off a credit card as it was coming off a 0% deal. I'd always just moved it around different cards, but, using Martin's advice of paying debt rather than have savings, decided to repay in full rather than slowly but surely adding to the pile that would get repaid sometime in the future.
A few months down the line I feel totally in control of my finances, and have an emergency fund I have built up. It meant when my bathroom sprung a leak a couple of weeks ago, the £40 came out of that pot rather than affecting anything in my budget. That's just a small example, but it meant there was no stress whatsoever whereas six months ago I'd have been worried about how to pay the same amount. I also think putting money aside for known expenses - Christmas does tend to come the same time every year - is particularly sensible budgeting. Otherwise you will just end up with a credit card bill which you cannot afford.

Firewalker

Ccarter, we paid our debt off in 2013 - cleared £100,000 in three years. During this time, we had a relatively small 'emergency' fund (about £500) to make sure that if something breaks we are not going to increase our debt. Everything else - all saved money, earned money from side hustles etc. - went immediately on paying off the debt.

My reason?

I saw my debt as THE emergency.

So, keep going; you are doing well.

Firewalker

DD265

northerner999 wrote: »

I found my mentality changed as I got more control of my finances.

I agree with this entirely.

I have paid off an over draft, a loan, a credit card and have one remaining credit card to go (lets ignore the student loan). I finished paying the first credit card last month but rather than immediately tackling the second, I'm effectively getting a months salary to one side to cover my budget.

Once I've done this - hopefully next pay day - I'll go back to cracking on with the credit card!

byjimini

Basically, you should save up to cover planned expenses - car tax, car insurance, MOT, birthdays etc. Then use the rest to pay off credit cards.

I put away £60 each time I get paid to cover car insurance, tax, MOT and any work that needs doing, and any left over at the end of the year I pay off a card.

Ccarter

Firewalker wrote: »

Ccarter, we paid our debt off in 2013 - cleared £100,000 in three years. During this time, we had a relatively small 'emergency' fund (about £500) to make sure that if something breaks we are not going to increase our debt. Everything else - all saved money, earned money from side hustles etc. - went immediately on paying off the debt.

My reason?

I saw my debt as THE emergency.

So, keep going; you are doing well.

Firewalker

YES! You are right the debt is the emergency. I will view it like that from now on. Thankyou!

FireWyrm

Ccarter wrote: »

Hi all,

I'm suddenly having a dilemma. Since aug I have thrown every penny at my debts. I have cleared one card, am about to clear my kitchen loan this month and have the last part of my divorce to pay for.

There are two schools of thought. One says that the debt is a HAIR ON FIRE EMERGENCY and should be paid immediately whatever the cost, and the perhaps the more prudent thought that $h1t happens and therefore you ought to be prepared for it. If the debt is on 0% cards, i.e it isnt costing you anything, then I dont see why you cannot save a little here and there.

Ccarter wrote: »

As a consequence I have not been saving anything at all. I have read on various posts that I should be saving for emergency's. Saving for birthdays and christmas.

Those are the kind of incidental spends that are going to happen regardless of your personal situation and there is no point lying to yourself about it. Christmas will happen as will feeling obliged to buy a birthday present. What you can control and what you should be doing, is limiting the impact of those spends to what you can afford. There is no point splashing the cash on Christmas if you are paying large amounts of debt. It's ludicrous. Have a modest Christmas which you have saved for and put the rest towards debt.

Ccarter wrote: »

Saving for a holiday (if I was having one!). My reasoning has been i'll think about it when it comes and just get rid of the debt

NO!. You dont get holidays while you are in debt. Sorry. That is a silly waste of money that would be better spent elsewhere. Once you are out, THEN go on holiday with clear funds which you have saved. It's a matter of priority.

Ccarter wrote: »

SO my question is, what have you been doing? Is it best to pay less to the debts but have a little bit saved for things coming up?

A balance between the two. I have a modest emergency fund such that an unexpected vets bill is not going to have me running for the credit card, but at the same time, every 'spare' penny is thrown at the debts. It is all about deciding what is 'spare' and what you can sacrifice to make it a spare penny. £1000 on Christmas would be silly. A better option would be £250 on Christmas and the rest on the debts. It doesnt mean you have to go without Christmas or that you shouldnt bother planning for it - it is just that you are cutting your coat according to your cloth.


Thank you in advance for any help[/QUOTE]

Fmess

northerner999 wrote: »

I found my mentality changed as I got more control of my finances.
Immediately after LBM I threw everything I had available at sorting debt, cutting costs and using it all to pay off a credit card as it was coming off a 0% deal. I'd always just moved it around different cards, but, using Martin's advice of paying debt rather than have savings, decided to repay in full rather than slowly but surely adding to the pile that would get repaid sometime in the future.
A few months down the line I feel totally in control of my finances, and have an emergency fund I have built up. It meant when my bathroom sprung a leak a couple of weeks ago, the £40 came out of that pot rather than affecting anything in my budget. That's just a small example, but it meant there was no stress whatsoever whereas six months ago I'd have been worried about how to pay the same amount. I also think putting money aside for known expenses - Christmas does tend to come the same time every year - is particularly sensible budgeting. Otherwise you will just end up with a credit card bill which you cannot afford.

I definitely agree. For the first year and half I paid every penny off my debt that I could. However, starting this January I started a monthly savings plan into a high interest 1 year savings account as well as tackling the remaining debt. My theory is that at the end of the year, if I haven't paid off all my debts, I'll pay the money saved plus interest earned, off the debt. However if I'm debt free, I will have a ready made emergency savings pot to start my debt free life

Ccarter

FireWyrm wrote: »

There are two schools of thought. One says that the debt is a HAIR ON FIRE EMERGENCY and should be paid immediately whatever the cost, and the perhaps the more prudent thought that $h1t happens and therefore you ought to be prepared for it. If the debt is on 0% cards, i.e it isnt costing you anything, then I dont see why you cannot save a little here and there.



Those are the kind of incidental spends that are going to happen regardless of your personal situation and there is no point lying to yourself about it. Christmas will happen as will feeling obliged to buy a birthday present. What you can control and what you should be doing, is limiting the impact of those spends to what you can afford. There is no point splashing the cash on Christmas if you are paying large amounts of debt. It's ludicrous. Have a modest Christmas which you have saved for and put the rest towards debt.



NO!. You dont get holidays while you are in debt. Sorry. That is a silly waste of money that would be better spent elsewhere. Once you are out, THEN go on holiday with clear funds which you have saved. It's a matter of priority.



A balance between the two. I have a modest emergency fund such that an unexpected vets bill is not going to have me running for the credit card, but at the same time, every 'spare' penny is thrown at the debts. It is all about deciding what is 'spare' and what you can sacrifice to make it a spare penny. £1000 on Christmas would be silly. A better option would be £250 on Christmas and the rest on the debts. It doesnt mean you have to go without Christmas or that you shouldnt bother planning for it - it is just that you are cutting your coat according to your cloth.


Thank you in advance for any help

[/QUOTE]

Thanks FireWyrm, I always like your advice. Hard hitting but real!