Saving vs clearing debt?

[Toastytoes1]

Hi. Just after your opinions please on whether its better to have savings and a monthly debt or no savings, but no debt? We’ve cleared all our debt (apart from our mortgage) very determinedly the past 18 months and the last thing we have is my husband’s car which finally finishes in December. There’s a £6500 final payment which we could afford in cash as I’ve managed to start saving since the rest of our debt was cleared, but that’ll take us back to £0 savings. The alternative is continuing the monthly payments of £267 a month until the debt is gone; 2 years basically. Our first baby is due in March so we are very torn. We’ve been working extremely hard towards being debt free for 2 years come December and I had so desperately wanted to have got rid of it all before we had a baby (we were incredibly lucky and got pregnant a lot faster than we thought we would). But it also makes sense to have some savings sat there for a rainy day.
However; between the car and another big monthly expense we’ve also recently cleared, my husband’s income will increase by £550 a month if the car is cleared completely and whilst some of that will have go back into the business, it should make life more comfortable for us, especially whilst I’m on maternity leave. I’m very fortunate that my maternity pay should cover my basic outgoings fairly comfortably for the year (one of the perks of saving to clear debt for 2 years is I’m used to living on virtually half my income by now) so even though we won’t have a big chunk of savings, we should be able to build some again relatively quickly.

So I’m just after other people’s thoughts? I’m leaning towards just clearing the debt once and for all and slowly building our savings up again from there but am aware that having nothing saved when having a baby is also not ideal. What do you think?
Thank you

I think if I were you I would go for clearing the debt. You don't say what the interest rate is on it, but undoubtedly it is higher than on your savings, meaning it's costing you money to have both the debt and the savings.

You've obviously developed much more frugal habits - well done to you - so the unexpected expenses that follow a baby you're likely to be able to find creative ways to meet, such as Facebook groups for second hand stuff.

Beyond the numbers and the satisfaction of going in to 2020 debt-free, there's also the fact that you are currently in the habit of tackling debt, and deciding just to let one ride for a further two years could have a negative impact on your motivation as well.

Good luck whatever you decide - you've achieved an amazing amount already.

Clear it. For all the reasons the pp offered.

My FA says it depends what your plans are in the immediate future for example. If you are planning to move mortgages then debt is a no. If you are staying put then putting the debt onto an interest free credit card and paying that back may make more sense. He would always advise me to keep savings as they are often so hard to replace.

Also, the kind of debt you have is much preferred by mortgage companies. CCD however is not. Just a thought.

I would clear the debt and then use the money this frees up monthly to build an emergency fund (3-6 months expenses at least). I'm doing the same and although I'll be a bit vulnerable for a month I think it will be worth it to be debt free.

Clear the debt. If you need a lump sum quickly later you can sell the car and buy something cheaper. If you mat pay cover everything you should be OK

If you're talking pure financials then clearing a debt that charges interest is always going to be the best way to go. However in your case I'd also want to keep some savings. Can you not save a few months more, so that when you clear the car you still have some savings to fall back on should you need to? Or can you pay a partial lump off the car, keeping some in savings?