Should you save money or pay off debt

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Photo by Ibrahim Rifath on Unsplash

Should you save money or pay off debt? This is a common question when tackling debt. Should you save money or put it towards your debt and it really depends on your personal situation. The simple answer would be to pay off whatever is costing you the most money.

For Example, if you have savings of £1000 that are earning 3% interest and £1000 sitting on a credit card accruing 16.9% interest, then the debt is going to cost more than you are making on your savings and it would be the obvious choice to pay off the debt.

However, you could have 0% on your credit card and choose to build up your savings with the intention of paying off your debt at the end of this period. This would mean that you would still receive interest on your savings and could get you into the habit of saving.

Something to bear in mind is that you should build up an emergency fund in case you find yourself in a situation that is going to cost you money. Emergencies are reserved for real emergencies like your boiler breaking down, car breakdown and other incidents that are quite serious. I've written an article here about why you should have an emergency fund.

What do you think the best option is? Let me know in the comments below or contact me here.