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It’s best to focus on paying off debt rather than saving. We explain why in our blog.
If you’re like most people, you probably have quite a few things that you want to do with your money and sometimes not enough money to do them all. Perhaps you want to go on that family holiday you’ve been talking about for ages, or maybe you’re looking at saving towards buying a house.
But what should you do if you want to save but you’re still paying off debts? Is it ok to do both at the same time? Let’s look at the facts.
Pay debts off first
When it comes to saving money versus paying off your debts, it’s all about interest. Money has a lovely habit of making more of itself – putting money into a savings account earns you interest, for example. But of course, if you borrow money, you pay the lender interest, making them more money.
The rate of interest on a savings account will almost always be lower than the rate that you pay your lender for money you’ve borrowed. This means you should pay your debts off first before you start to save. If you were to save first, you’d still be paying that higher rate of interest on your debts and losing out overall.
A rainy day fund
But that’s not to say you shouldn’t save anything at all for a rainy day if you have debts. For example, what would you do if the car or washer broke down? Or your household bills were suddenly higher than expected or the kids needed money for another school trip? It can be a very good idea to have a little something saved so that unexpected bills don’t cause you a lot of financial worry.
If you are able to keep up with your repayments and squirrel something small away every now and again, that’s fine. It’s just not a good idea to save at the expense of repaying a debt.
Put your payments in priority
We all have lots of payments going out every month that we need to keep on top of. Just as it’s important to pay debts off before you try to save, it’s important that you put your payments in priority too.
Your mortgage, council tax, utility bills, income tax, court fines and any secured lending are all classed as priority bills. Missing any of these payments can have very serious consequences. You should certainly put these payments before saving and even before other unsecured debts you may have.
Help with saving
If you’ve paid off all your debts and you’re ready to save a nice nest egg, that’s great! There are lots of different ways you can go about this, but the most important piece of advice we can give is to make a really detailed budget.
A budget shows you how much you’ve got going out, how much you’ve got coming in and what’s left over. You’ll then know how much you’ve got to spend on the different areas of your life whilst still leaving something left over to save.
Why not have a look at our blog on keeping track of your money for lots of tips on how to maximise your income and make every penny count.
Help with debts
If you’re struggling to repay your debts, it might be time to seek expert help. Simply budgeting a little more could enable you yourself to afford all your outgoings, or perhaps your circumstances have changed making it impossible or you to keep up.
If this is the case, there are debt solutions that might be able to help. Each one is designed to help in slightly different situations, so it’s a case of finding the right one for you.
Whatever the problem is, we can help. Our advisors are specially trained to identify the root cause of your debt problems and the very best solution for you. You can get in touch with one of our experts using the options on the left – it could mean the beginning of the end for your problem debt.
There’s also lots of free and impartial advice available from the Money Advice Service and various debt charities.
Achieving your money goals
We’ve written a lot on how to achieve your financial goals and more importantly we’ve spoken to and helped thousands of people beat debt and get back in control of their finances.
If you want more help on how to save in different areas of your life, or how to beat debt, make sure you check out the rest of the blog and get in touch. It can sometimes feel like an uphill battle, but one thing we know for sure is that it is possible to achieve your financial goals as long as you have a solid plan, dedication and – in some cases – expert help.
by Christine WalshBack to blog home