Should I put money into savings or pay off debt first?

Summary: This article is aimed at those looking to prioritise their finances in terms of savings and debt repayment.

With so much publicity these days about potential issues with pension funds and poverty after retirement, it is vital that planning starts as early as possible. However, in difficult times, many find themselves in debt just to be able to make ends meet. So what is the best course of action. Repay debt, put money into savings, or both?

Set up a budget

The first step when planning ones finances is to assess income and essential outgoings, set a budget based on what can be reasonably afforded, and stick to it. This should highlight what income is remaining to be able to pay off debt and/or put into savings. It is important that with any debt, at least the minimum repayment is included in the budgeting plan, as failure to meet such a payment will result in a default on the loan and could have future implications.

Prioritise debt repayment

In order to prioritise debt repayment (if any) it is important to understand how much the debt is costing in terms of interest and fees. This information can be found on any monthly statements. The most expensive debt should be paid as a priority as the interest not only increases the overall debt, but also extends the repayment period (remember to maintain at least the minimum repayment on all other credit). Once a suitable budget has been established, it should be clear how much income is left over to top up the repayment.


Of the options available, in most cases, if an individual is able to clear the debt, this is always going to be the best course of action. However, for many, this is just not possible. The best action to take is to avoid getting in the situation before it happens. If an individual feels they are struggling to repay debt, they should seek immediate advice from the Citizens Advice Bureau (CAB), or one the other free debt advice services available, or from a reputable licensed money advisor.

Seek further help

If after setting a budget and prioritising the debt repayment there is a shortfall and there is still not enough money to cover outgoings, it could indicate insolvency, and therefore the individual should seek advice as soon as possible, be it from a licensed money advisor or from one of the free advice services such as the Citizens Advice Bureau (CAB), National Debtline or Step Change. It may be that a debt solution such as an Individual Voluntary Arrangement (IVA) may be appropriate.