When to save rather than repay debts

You have to make the right decision of either saving your extra monthly money, or repaying your debt

09:44 19 September 2013

Saving your extra monthly money into a savings account doesn't necessarily lead to you earning more money if you repay debts in the same time. Most of the time in this case you end up spending more money on debt interest than earning on your savings account interest. So here is what you should keep in mind before making the decision to either save or repay debts:

• if you can repay one of your debts in a short time, then you should first aim to do this than to save;

 

• if you are already low on your extra monthly money due to debts, then don't bother saving – it won't be enough to make to a difference;

 

• if you want to make sure that you always have an emergency fund available in case anything happens, and you have a good reason to think that it may, then it's better to focus more on saving rather than repaying debts;

 

• if you found a saving account type that offers great benefits to you particularly, such as ISA, then again you should focus more on saving than repaying debts;

 

• you can also start to save when your major debts, such as mortgage or car loans, are not a major financial problem for you;

 

• you can start saving if you will earn more interest than you pay on your debt repayments;

Remember that the best way to save money is always by first reducing the surplus costs, and debt interest is the first one to take care of. As soon as you repay your debts, you will be able to save much more than you would by opening a savings account while still having debt.