Detox your finances
Article in images

Paying off debt with savings


 - Paying off debt with savings
© Getty Images/Jupiterimages
Should I pay off my debts with my savings?

“Those with both debts and savings are seriously overspending,” says Keefe. “The solution is simple; pay the debts off before you save. And forget the old-style ‘must have an emergency savings fund' logic—getting rid of debts beats that too.”

The difference between the rate at which the bank borrows your money (the savings rate) and the rate it charges other people for loans (the borrowing rate) is the bank’s profit, so as a general rule it will always cost more to borrow than you can make in savings.

There are a couple of exceptions though, Keefe says. “If you're locked into the debt, so that paying it off incurs a penalty, as with some loans or mortgages, then leave the cash sitting in a savings account until the penalty's small enough that it doesn't matter. The one other big exception is student loans, where the interest rate on your debt is normally less than the amount your savings earn after tax.”


Women in Focus Editor
Rank this page: 

Article Plan Detox your finances
Don't miss...
How can you tone your shoulders while you’re in the kitchen?Tone your whole body with Jade!
CLONE: QUIZ: Which Mockingjay Character Are You?1st episode: Marie invites you to a cookery lesson like no other...
Latest… 05/01/2018
Managing money
Changing your name | How to change your name
Scrapbooking: making a scrapbook album like a pro
Work for yourself - get your small business online
See all Women in Focus guides
Teaching kids about money
See all Women in Focus videos

Don't miss out!

...Join our newsletter
Get the wewomen latest straight to your inbox
Find us on...