Most experts will say that it’s best to pay off debt before you start saving. While on some levels this makes sense (for example, you’ll pay less interest in the long-run), there are pros and cons for both sides.
Personally, after having been in a fair amount of debt and suffering the consequences of having no rainy-day fund, I’m a big believer saving before you’re debt-free.
*Disclaimer: Although I’m well-informed and have read around the subject (and have my own personal experiences to share), I want to point out that I am not qualified to give out financial advice. Everything I discuss in this article is just my own personal opinion. If you have any real concerns or questions, please make sure you direct them at someone who is qualified to help.
Saving Money While Paying off Debt
The biggest reason I think you should concentrate on putting money in savings while you pay off your debt is so that you can manage if something unexpected happens. When I was in a lot of debt, I was working full-time and just about managing as a single mum.
Then my dad died.
Although not entirely unexpected (he had cancer but had been doing well), it was still a shock and culminated in me taking around a month off work. During that time I only received statutory sick pay, and even then it was after I’d already had one week off. I also made the mistake of returning before I was ready and getting a second sick note, meaning another week of unpaid absence.
My priorities were to feed myself and my daughter, then pay my rent and utility bills. I had no savings, I couldn’t pay my debts and I had no one to ask for help. In the past when I was in a bind, my dad would have bailed me out.
That was when I realised that the advice I had been following wasn’t meant for people like me.
If you’ve got no savings, you’ve got no safety net.
I do understand that debts can be crippling. I also realise that for some families, there won’t be a single penny left over to put aside into savings. If this sounds like you, you’ll definitely benefit from seeking debt advice from the Citizen’s Advice Bureau.
However, if you’re managing to repay some of your debts and have a little money left over, I think the best move is to put it aside into savings. After what happened to me, I think a sensible amount to aim for is a month’s salary. A month’s salary should be more than enough to cover you for unexpected illness.
How pay into savings while paying off your debts
The first thing you need to do is sit down and work out your current financial position. Check what money you have coming in, what your outgoings are and what you really spend what’s left on.
Once you’ve worked out what you’ve got left over and where you spend that money, you’ll be able to see where you can cut back.
So many people I know waste the most money on convenience eating. They won’t bother to take a packed lunch to work. They’ll have regular takeaways because they don’t feel like cooking. They’ll drink 1-2 bottles of wine in a week.
These are all life’s little pleasures, but they aren’t essentials.
Even cutting down on a bottle of wine each week and banking the £5-10 you’d usually spend can go a long way. Ten pounds a week is £520 in a year. It’s not a month’s wages, but it’s a start.
Once you’ve got a small nest-egg and you’re confident you could manage if something unexpected happens, that’s the time to start paying off more money on your debts
One trick to use that clears debt faster without your wallet taking a hit, is to always pay the same amount every month.
If you normally pay just the minimum payments, those payments decrease as you settle more of the debt. If you always pay the same amount each month, as the minimum payment decreases, you’ll be paying more back than the lenders suggest. It won’t clear the debt in a lightening-fast fashion, but it will speed things along a little. It’s also an amount you know you can afford because you paid it previously.
As I’ve mentioned above, I’m only saying what I would do in this situation. I am not advising what you should do. If you are concerned about debt, please seek advice from somehwere reputable such as the Citizen’s Advice Bureau.
Pin this for later: