Saving VS Paying Debt

Brummyboy92

New to the forum, so huge apologies if this is a subject that has been discussed to death, however I have been thinking a lot lately about being more involved in the finances at home.

For context my partner looks after them, and does a good job, but we disagree on a few aspects and I would be keen to understand what other people think. 

We are a couple in a long term relationship, in our mid 30s, who've just adopted two children. We brought our home in 2020, and we're on a fixed rate for a couple more years. 

We have just over 37K in the bank, with most of it sitting in a high interest savings accounts, and it does pretty well. Between us we have around 9k of debt across credit cards, etc.

My partner prefers to keep the savings in the account, and pay off the debts monthly as we can afford it comfortably. We have always done it this way, and it's worked perfectly fine. I on the other hand have been rocking the boat a bit lately, exploring the idea of paying off our debts completely. We would still have a big surplus of savings, and to maintain our credit score we could use our cards for weekly food shop, paying off at the end of every month. 

So my question is, is it better to save and pay off the debts, baring in mind we have £1K surplus a month (although since the children moved in this will change, we've just not had the time to look into this properly yet). Or do we pay off our debts related to credit cards, catalogues and then start saving again? 

vacheron

Everyone feels different, but this flowchart could provide some impartial help.

The interest rate of your credit card debt is the big decider.

Martico

On a basic level, if the interest rate that you're paying on your debt is higher than the interest rate that your savings are attracting, prioritise paying off the debt

eskbanker

Pay off debts or save? Max your cash - MoneySavingExpert unsurprisingly echoes the above, i.e. looking at it based on relative interest rates is highly likely to point you in one very clear direction!

Jami74

If the debt is all at 0% then it's a no brainer to keep the money in savings earning interest. If your savings are earning your 5% and your debt costing you 20%, then you'd be better off paying off the debt.

Brie

AND in addition to agreeing to paying off the debt first (depending on the interest rate!) you might tell your OH that if you pay off the debt you then have all that money available to bulk the savings back up quite quickly.  

Brie

Oh and also look at why you have the debt.  It sounds like that might not be a problem anymore but if you clear a credit card and simply turn around and max it again you aren't really making progress.

jimjames

Hopefully the credit card debt is at 0% and by having your savings getting 5% (they are earning a good rate aren't they?) you're making the best of having that credit card. If you pay 30% interest on the cards and earn 5% or less then you're going backwards.

saajan_12

The maths is fairly simple - compare the interest rates on the savings v debts, as well as the tax band of each of you and how much of an emergency fund that would leave you. 

However this sounds like more of a relationship question rather than a maths one. Why does partner want to retain the savings and continue the debt? Why do you disagree? I'd draw up each of your pro/con lists and rationale for your opinion, and then see if you can dispel any contradictions. 

eskbanker

Brummyboy92 said:

We have just over 37K in the bank, with most of it sitting in a high interest savings accounts, and it does pretty well. Between us we have around 9k of debt across credit cards, etc.

[...]

Or do we pay off our debts related to credit cards, catalogues and then start saving again? 

Surely paying off the debts would only deplete less than 25% of your savings, so there wouldn't really be any need to 'start' again as such?

Brummyboy92 said:

...to maintain our credit score we could use our cards for weekly food shop, paying off at the end of every month.

Credit scores are simply numbers invented by ratings agencies to try to sell services, so don't be unduly influenced by a made up number!  Should you get to the point where you need further credit, the way you're perceived by prospective lenders will definitely be better without existing debt than with it....

SacredStephan

You should pay off your credit card and catalogue debts ASAP. Borrowing money at 25%+ and putting it in a savings account at 5% makes no sense.