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Original poster

Should you save and pay off debt at the same time?

30 replies

Freespirit211 · 31/07/2017 11:16

I've got another thread going just now but hoping some people can help me with this too.

I've had some excellent advise on my other thread but it's left me wondering, should you save for a rainy day at the same time as trying to pay off a credit card? Or should you throw any spare money at the credit card and dip back into it when you need to?

Appreciate any advice :)

OP posts:
Original poster
Freespirit211 · 31/07/2017 11:17

I like the idea of never spending on the credit card again but that would mean I'd have to save at the same time.

OP posts:
Original poster
Freespirit211 · 31/07/2017 11:19

Also, our credit card isn't on 0% so I suppose the more money I pay off, the better, even if I have to spend some of it at some point.

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sleepyhead · 31/07/2017 11:30

No. There's no point in saving if you have credit card debt. You might as well throw your money away as there's no way any interest you get would outweigh the cost of your card (s).

Original poster
Freespirit211 · 31/07/2017 12:08

Thanks sleepyhead makes sense.

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Original poster
Freespirit211 · 31/07/2017 12:36

Although I'm not talking about proper saving. Just short term saving for things happening in a couple of months time etc. If that makes sense.

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DangerMouse17 · 31/07/2017 12:38

It's good to have some savings...so you don't have to use your CC when the boiler breaks down or whatever. Otherwise you just add to the debts...

DownUdderer · 31/07/2017 12:41

I think to be able to break the credit card trap you should have a small ish buffer saved up ie a thousand pounds. The next time something unplanned crops up you won't need to increase your debt to cover the expense. I think the buffer should be there in case your car needs unexpected work or a household appliance breaks.

I believe Dave Ramsey calls it a rainy day fund or mini emergency fund or something.

It can hard to break away from a credit card habit. Lots of people fund things on a credit card at the end of the month then pay it off when wages arrive in the bank account. To move away from this to-ing and fro-ing with the credit card it's great to build up emergency savings.

sleepyhead · 31/07/2017 12:44

But if you used your boiler money to pay down the cc you wouldn't be paying interest for it while you were waiting for the boiler to break down.

Consider £2k of cc debt and £2k of savings. You suddenly have a £2k expense and use your savings leaving £2k cc debt. Or £0k cc debt (because you paid it off) and 0k savings. £2k expense leaves you with £2k cc debt.

But in the 2nd scenario you only pay interest on the cc at the point you incur the unexpected expense. In the first you've been paying 18% interest whatever happens (While your £2k savings accrue very little if any)

DownUdderer · 31/07/2017 12:45

We literally save up for everything in advance now and have an emergency fund. We put away small amounts every fortnight towards hundreds of categories ie day care, car service, mot, holiday fund, birthdays and Christmas. Once the money is allocated to a savings goal or fund it's much much harder to spend it on something unplanned for! If I bought unplanned for shoes for example I would know we would fall short on day care funds.

DownUdderer · 31/07/2017 12:47

Sleepyhead if you're good with money you can do as you say but the trap that lots of people fall into is using the credit card and never paying it off. Lots of people plan to pay it off before the 0% runs out but it rarely happens.

Original poster
Freespirit211 · 31/07/2017 12:50

Sleepyhead - that's the reason I asked the question. My head tells me, pay the debt off and throw every penny at it, I can always dip back in in case of emergency. There's another part of me that lived the idea of never spending on the credit card... ever again! I wonder if this would keep me on the straight and narrow better, although I know it'll cost me more. So hard to decide.

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sleepyhead · 31/07/2017 12:51

If you're not good with money you will spend your rainy day money (always promising yourself you'll pay it back next month) so it's a moot point Smile

MaverickSnoopy · 31/07/2017 12:54

I firmly believe that you should pay off the things with the most amount of interest first, and after that any 0% debt. However I also need to know that I also have the money aside that I need for things. So each month I save for things that are important to me: repairs/kids clothes/Xmas etc. I did this when I had a cc and I still do it now. I've always been very disciplined at not dipping into it and paying as much as I could off any debt. Even now we overpay on the mortgage when finances permit.

Original poster
Freespirit211 · 31/07/2017 12:58

So... do you guys have loads of savings accounts? Like one for xmas, one for birthdays, one for holidays etc etc? Are the banks okay with this? Sorry I'm such a novice with all of this stuff.

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Original poster
Freespirit211 · 31/07/2017 13:16

Progress made - I've changed the "account nicknames" on a couple of existing accounts I have and have set up standing orders. I'm working on a cash flow plan which should free up some extra and I'm putting the extra that I free up, into the rainy day fund. Getting there.

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DownUdderer · 01/08/2017 04:59

Have a look at ynab they explain it really well. I use it and love it.

nannynick · 01/08/2017 09:39

Mathmatically it makes more sense to pay off the debt but if you were good at maths you would not have the debt to start with! (Think that is a Dave Ramsey line, he does come out with some good ones).

You need to break the habit of using debt. So you need an emergency fund instead of adding to debt if something occurs. £500-£1000 is usually sufficient to cover most small emergencies.

Then pay off debts smallest to largest, so you train your brain that debt is bad and it can be paid off. By paying off the smallest first you get a quick Win which helps motivate you to tackle the bigger debts.

nannynick · 01/08/2017 09:44

Love the username, you are the free spirit not the nerd. Though you may be changing... getting more nerdy!

WaxOnFeckOff · 01/08/2017 09:53

Firstly shift the CC debt to a 0% interest card. Work out how much you'd need to pay per month to pay it off in the 0% timeframe. If that's the same or less than you are currently paying per month, then set up a DD to pay that amount to the card every month. Cut up the card when it arrives in the post and effectively forget about it.

If that leaves you spare cash then that's what you use to build your savings. If it doesn't then reduce your DD by about £10 and put that into savings - every little helps.

Missuz · 01/08/2017 11:00

Personally believe you can do both so long as you aren't paying the minimum on both occasions. A standing order is better than a direct debit.

Ellisandra · 01/08/2017 11:06

Whilst I agree with the maths of Sleepyhead's boiler £2K example, k would still advise building a small emergency fund first.

Reason being, is you don't know what twists and turns life with take, and you don't know that when you need £2K for a boiler, you'll have the same access credit that you do now.

Imagine you have £2K credit card debt. And you lose your job. You're at your max, no more credit available and you can't even make minimum payment. You're in trouble.

Now imagine you have £3K credit card debt but £1K savings and life goes tits up. You can use your savings to make minimum payments and it might just give you the cover you need until you get a new job. Or you have to accept you're not making the payments at all - but you can buy food.

If nothing goes wrong, on paper you'd have been better off paying your £1K off the card. But you've no safety at all.

Build a small emergency fund, then throw everything at the card debt.

WaxOnFeckOff · 01/08/2017 11:07

A standing order is better than a direct debit

It depends. A standing order is in your control but sometimes can be harder to easily adjust the amount (depends on your bank) and it's also reliant on you stopping it when required. A DD is dependant on the receiver requesting the correct amount but can be easier to adjust (dependant on the CC company) so that you can get them to alter the request to ensure that the last payment is the exact amount that remains.

Two cheeks of the same arse in many ways though. :)

Original poster
Freespirit211 · 02/08/2017 06:35

So do you guys think I should also put money away for xmas into a savings account rather now also? I've never saved before you see, since we're in debt. I've always paid off debt then gone back into it. Obviously that system doesn't seem to work for me. If it did, I wouldn't be in this mess.

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WaxOnFeckOff · 02/08/2017 07:41

OP, it really depends on the numbers. How much debt you have, if you are paying interest, how much you have spare...

What I'd do is tot up what income you have and then list your fixed outgoings. Then add anything else you regularly spend during the month such as food and petrol, takeaways, haircuts etc. In a seperate column list annual stuff such as birthdays, Christmas, holidays, tv licence, car servicing etc. Divide this figure by 12.

So now you have your income, your fixed outgoings per month and your annual stuff per month.

Hopefully the outgoings come to less and that's the money you have to play with to get rid of your debt and build long term savings.

If you are paying high interest on your debt then you do need to prioritise paying that off, but if possible I'd start two lots of saving, one to cover annual stuff and the other for long term/emergency stuff.

It might take longer than you think to be completely debt free. What I've found is that now that I am debt free, although I don't have everything completely saved up for, if I put holiday costs on my card, I can put all the money I was paying for my debts to the fresh debt and pay it off in 2 or 3 months. And now that's left me able to save that extra money for Christmas. Then after Christmas I'll be saving for holidays etc.

JumboLina · 02/08/2017 07:43

@DownUdderer How do you do that? Do you literally have a dozen savings accounts?