Should you pay off debt or start saving first?
🔸 Plus: 1.4 million workers dropped out of their workplace savings plans 🔸 The guy who won £316,000 in quiz prizes 🔸 The “buy now pay later” market has quadrupled 🔸
You 2-minute guide to demystifying money and making you richer
Should you pay off debt or start saving first?
If you’re not sure whether you should pay off your debts or start saving first, here’s a method for making that decision. There are three steps:
The golden rule: pay off debts first
Separate good debt vs bad debt
The third way: saving and paying off debt at the same time
1. Pay off debt first
The key is to compare the interest on your debts with the interest you earn by saving.
If the debt interest is set at a higher rate than your savings, it’s generally wise to pay off that debt before growing your savings.
This is especially true when it comes to short-term borrowing, like credit cards, store loyalty cards, and overdrafts. This kind of unsecured credit carries high interest rates. It's generally a good idea to pay down debt as quickly as possible.
2. Good debt vs bad debt
However, not all debts are created equal, and some don't need to be on the fast track to repayment. Good debt is t…