Advice on whether to pay of debts or keep the contingency fund please

[AMumGoingMad]

Whats better when you are a 1 income family?

1. Have enough money in savings for 2 months if that income was to be lost but have debts and the associated payments.
2. Have no savings but have no debts and associated payments so therefore can start to save again.

We could pay off the vast majority of our debts IF we used our contingency money which would keep the roof over our heads if DH was to loose his job. It would release about £300/month from our monthly outgoings which we could then use to start saving again but not at £300 a month because we can't afford £300/month on payments and its getting us into more debt. We could afford to save £150/month though.

The usual advice is to pay off debts first, as interest paid on debts is usually greater than interest on savings.

Personally I think it's a good idea to have a little money for contingency. But in your case, if using the contingency money would pay off the debt to the point of allowing you to start saving again, I think I would be tempted to do that.

Unless there is a real chance that your partner is about to lose his job, like mutterings of redundancy in the office, I would pay off the debts if I were in your position.

Well if you were to need a new roof, you could always get a new loan. You will spend less on interest the less debt you have.

I'd suggest something half-way. Keep just two or three hundred back for emergencies so that you're not having to scrabble around taking out expensive loans or using overdrafts and credit cards if something unexpected comes up. Then pay the debts off with what's left. You'll build up your savings really quickly once the debts are gone.

Thank you for your advice. My gut feeling is the same, clear the debts with the money and then start to save again. The debt repayments are causing us to over spend each month by about £150 and its slowly crippling us because we're then incurring o/d charges as well. I'm getting so worried that we're ending up in more debt because of debt. DH is sure his job is secure as best he can be, no rumours of redundancy or the like. We've sat down this afternoon and worked out figures again and we don't see a lot of option but to pay it all off and start saving again. We'd sleep better I think.

Pay off debts.

Martin Lewis on money saving expert hasa good section about having savings and debts.

Having read your last post, definitely pay off the debts first.

I would also pay off the debts. You are being charged interest on the debt that far exceeds any interest you can gain on your savings.

We have been in the position of a job falling through & having to use contingency money to support us while Dh found another job.

You need 4 more weeks than you think to cover you from when the job starts to when you invoice & get paid!

And yet I would still advise paying off the debt. If you have no savings & no job I would advise you to stop paying out any direct debits to leave money in your account. Plus you find you raid your cupboards & freezer for food

I'd pay off debts first, and try to build up some other contingency fund beyond money while you get your savings back up eg we always keep enough Nectar points that if we were to have no access to money for some reason we could still do a big Sainsburys shop and at least not worry about where the next meal is coming from for a while.

What what you've said it sounds like you can afford half your current debt repayment. (£150.) So pay off half your debt. That leaves you enough contingency so that if the boiler blows up / your h's work's bacs system doesn't go through / the car fails its MOT it isn't a disaster but reduces your debts so you can afford them.

Once the debts are paid off then save the debt money to get your contingency fund back again.