Debt and savings help

[Brooklyn99999]

Hi all

I have recently discovered we are in a lot of debt, circa 50k. We (luckily) earn enough to pay this off within 2 to 3 years. I have taken over the finances and began hardcore budgeting, stripped back all expenses etc. Converted all debt into two loans with monthly payments to keep the interest at a minimum that I plan to overpay to get it gone quicker.

Bearing in mind I can’t afford to have savings right now as I want to throw everything at getting rid of the debt, how much would you keep as a small emergency fund? I was thinking £2k?

should mention both have very stable jobs, highly unlikely to ever be out of work and salaries expected to rise in the next year.

Any thoughts?

What/who was the cause of the debt? And have you dealt with that/them?!

Long story, was avoidable, but it’s done now, and yes, I’ve definitely dealt with that.

2k wouldn’t be enough for me- boiler needs replacing tomorrow, a new washing machine. I would build that up alongside paying the debt.

Noted.

I should add, we can afford to overpay the debt by approx 800 a month, so I was thinking 2k kept always and if needed I can not overpay that month and have an extra 800, hope that makes sense.

I reckon £2k is around the bare minimum. I assume you have buildings and contents insurance?

things that can go wrong are usually car related, washing machine/fridge packs in, big dentist bill, new glasses etc.

£2k might be fine - maybe see if you can gradually build it to £3k for peace of mind.

but you are doing the right thing throwing all spare cash at the debt. Good luck 🤞

I seem to remember being advised to build up savings of 3-6 months' worth of your salary as a good safety net - £2k doesn't really sound enough based on that.

This website says:

Experts advise individuals to save at least three months’ worth of living expenses

I agree that sounds like a good idea, but for the next two or three years I’d rather just throw everything at it and get it gone quicker, then build up proper savings from there. So I’m just looking for a small amount for emergencies, rather than a proper savings pot right now.

If over paying by £800 - I’d over pay by £500- and after a year use the surplus savings to over pay, but at least for a year you’re building a buffer.

I would say for the moment 2K is about right. The ideal of 3-6 months of savings is great but only after debt has been paid off.

Agreed. Also if your jobs are secure and you have good sick pay it’s unlikely you would need tens of thousands of emergency funds.

Hopefully you have the debt on interest free cards?

I think this is what I’m going to do, build a slower buffer then pay bigger chunks towards the debt every couple of months maybe but keep the 2k as an emergency fund.

as someone’s just said I’m unlikely to need thousands in one go as jobs are very stable and while anything can happen, it’s more likely to be needed for things like car repairs or replacement appliances.

2ish years to go to be debt free! Except the mortgage of course.

Good luck! I have 24 more (very high) payments to be debt free too (and will not get into that mess ever again).

Definitely do as suggested above and pay £500 overpayment, £300 into savings. Then send a lump sum over every few months if you haven't used it.

The Ramsey baby steps method would be to have £1000 as starter emergency fund, then focus on paying off smallest debt.

If £2k makes you more secure, do that. The key is to get started on paying off the debt as soon as you can, as quickly as you can, and avoiding taking out any more debt. If you are in a hole and still digging (taking out debt) then it is hard to fill in the hole.

Some people find the Ramsey Show podcast/YouTube helpful in keeping motivated whilst paying off debt. Your debt free journey can take many years.

www.ramseysolutions.com/dave-ramsey-7-baby-steps