Savings or debt - which comes first?

The debt argument
The main argument for paying off debt sooner is probably the amount of interest you'll save. The longer you pay interest, the more you will pay overall, so by 'overpaying' debts (repaying them more rapidly than you have to), you could potentially save yourself hundreds or even thousands of pounds in interest, depending on your situation. However, check whether your lender has an 'early repayment charge', which could cost you more than you might expect.

If you have multiple debts, there is an argument that says you should pay off the debts with the highest interest first. Another school of thought suggests repaying the smallest debt first, because once it's cleared, you'll feel more 'motivated' to tackle the next-biggest one, regardless of the rate of interest.

The savings argument
The main argument for saving is the security and peace of mind it will bring you. There will always be 'unexpected' expenses, such as a burst pipe, a leaky boiler or a flat tyre. Without room in your budget for the unexpected, you could be forced into more debt.

Saving is prudent. It's about planning for unexpected events in the future, as well as the things you want to pay for in the future - like sending your kids to university, retirement and old age.

The consequences of repaying debt more slowly
Any savings you have are devalued by inflation, which is currently 4.5%. And since savings almost always come with a lower interest rate than debts, you'll probably earn less interest on savings than the amount of interest you would pay on money you've borrowed.

The consequences of not repaying debt at all, or falling into arrears, could be charges, a damaged credit rating and even court enforcement action such as a County Court Judgment (CCJ) - and if you owe money to your family and friends, you could damage your relationships with them by not repaying what you owe within a reasonable amount of time.

The consequences of having no savings
The main consequence of having no savings is that you have no safety net. If you needed money in an emergency, you could have to take on more debt. The rate of interest you'll pay really depends on quite a few factors, including how much you have to borrow, for how long and your previous credit history.

Making room for savings and unsecured debt in your budget
A comprehensive budget should take into account any priority debt payments, all the essential expenses like utility bills and Council Tax, as well as unsecured debt repayments and (hopefully) a realistic amount of savings.

If your unsecured debts are simply no longer affordable, this debt management company might be able to help you repay what you owe at a rate you can afford. They can tell you more about affordable debt repayments, designed to fit in with your budget.