pay debtTo save or pay debt is a question that most normal families will have had to tackle at one point or another. The fact it’s common, however, does not mean that there is a simple answer to the problems this decision can create.

On one hand, you want to pay debt. They might be consumer debts, or just leftovers from your student days that you are fed up of having to deal with. Even if these debts are on 0% interest, you can still feel them nagging away at you, worrying you. It can feel like you keep making monthly payments that don’t make much of a difference to the overall total, which is more than a little disheartening.

On the other hand, it’s pretty hard to feel that debt is a barrier to your financial future. If your debts are manageable and you’re not relying on your credit cards to get through the month, it can feel like you’d be throwing money away to pay them down. There are certain things for which you can only use cash, so, you theorise, would it not make more sense for you to ensure you have a cash backup in case you need it?

Is there a right answer to if you should pay debt?

It depends on who you ask.

Money gurus will tell you that you should always pay off debts before making any attempt to save. On a purely financial basis, that makes sense. You are usually going to be paying more in interest on debt than you would be earning on savings.

However… that’s not necessarily the only thing worth considering. Sometimes, it’s about security, which is something many money gurus have a tendency to overlook. If your debts aren’t causing you any short-term stress, it can be useful to have a fund of money set aside to rely on in the case of an emergency. You might have money left in terms of credit, but nothing makes anyone sleep easier at night than cold, hard cash.

So while it may seem bizarre to those who tell us the money “rules”, there’s actually a good emotional reason for wanting to having a savings cushion before you get to the point of paying down debt. It might not make sense in a strict numbers sense, but not all of us make decisions for a rational reason. That’s why, for some people, ensuring they build up a bed of savings is more important than worrying about debt; it’s why online payday loan lenders appeal even to people who have money put aside; why people will go without to make it to payday without having to dip into savings. There’s a safety in the money being there.

When Is This A Problem?

There is nothing especially wrong with doing this. You might break some of the money rules, but those rules are in place based off the idea of earning from your savings. They don’t take into account the benefit to your mental and emotional health by knowing you have cash available.

The point at which this habit becomes a problem is when your debts are costing you a huge amount of money. If you are only paying the minimum payment every month and are still struggling, then your debts are no longer “stress-free”. In these instances, it would be a wiser use of funds to pay off a chunk of the debt and reduce that monthly burden. After all, this is about security, and being terrified of your next credit card bill is anything but secure.

Don’t let credit card worries control you.


If you do decide to save a cushion of cash to fall back on, it’s important to set yourself a limit. Anything in the lower four figures is the best idea. It shouldn’t take too long to accrue, and it’s a worthwhile sum if you ever run into problems. When you hit your target figure, then re-divert your budget. That way the money you were saving now goes into debt repayment.

If you do do this, do try and remember your emergency fund is just for that only: emergencies. It’s far too easy to get trapped into a cycle of saving, then using it, and all the while you’re not using it to pay debt – in favour of saving that isn’t happening. Keep the money separate so you aren’t tempted to fall into this vicious cycle. A second account or ISA aside from your normal banking is the best option, so you’re not tempted.