Managing debt and saving for the future

You’ll rarely earn more interest on savings than you pay in interest for an arranged overdraft or credit card borrowing. So try to pay off any debts before you start to save.

How to prioritise your debts

It’s a good idea to prioritise which debts to pay off first to help you clear them faster and save money. It may help to split them into priority and non-priority debts:

What are priority debts?

Priority debts carry a serious penalty if unpaid, so clear them first. Examples include:

  • Court fines
  • Council Tax
  • Child maintenance
  • Gas and electricity bills
  • Income Tax, National Insurance and VAT
  • Mortgage, rent and loans secured against your home

What are non-priority debts?

Non-priority debts should be cleared quickly after any priority debts as they may have high interest rates:

  • overdrafts
  • personal loans
  • banks or building society loans
  • credit card, store card debts or payday loans
  • money borrowed from family and friends.

Debt emergencies – getting advice

If you’re facing an emergency like losing your home or going to court, talking to someone could be best. There are free advice services across the UK to help in the best way for you.

There are many ways to clear your debts. A free debt adviser can help you find a solution that suits your circumstances. You could be debt free sooner than you think.

If you’re experiencing financial difficulties, seek independent help and advice from MoneyHelper or use their debt advice locator tool to find help near to you.

What about paying off your mortgage early?

If you have spare cash, you might consider reducing your mortgage. However, it’s wiser to pay off expensive debts on high interest Credit cards and store cards first.

You should also check your mortgage deal to see if you’ll be charged for overpaying your mortgage, either monthly or when you pay it off. Use our mortgage overpayment calculator to find out how much money you could save by overpaying on your mortgage and reducing the interest charged.

Get into the savings habit

Once you’ve cleared your debts you’re freed up to save more and faster.

Our Money Health Check tool will help you see if you can improve your finances and get on top of your debts.

Regular saving is really important. Set up a standing order or Direct Debit to move money to a savings account regularly so you don’t spend it or forget to put it aside.

To save faster, why not set a savings goal so you know:

  • how much you are going to save
  • how long it will take you to reach your goal.

Use The MoneyHelper Savings Calculator to help.

What about an emergency fund?

Ideally you should aim to have three months’ money in reserve as part of your savings. But keep to what you can afford and make sure you save regularly.

If money’s tight, start small. Saving just £3 a day adds up to £1,095 over a year.

If you have debts, clear these first and use a credit card as your emergency fund. But it’s important not to start using the card for other purchases, as you’ll risk creating more debt.


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