Saving money or paying debts? What is the best way to improve your finances?
We are currently living through uncertain and unsettling times. Societies all over the world have effectively closed down due to the COVID-19 pandemic and nobody knows when life will return to normal. The unemployment rate in the United Kingdom alone is expected to reach 4.7%, and global economic fallout is inevitable.
For those who still have a steady income, now is the time to begin preparing for the economic impact of the pandemic. Deciding whether to put money into a savings account each month or to pay off credit cards and debts before saving, can be a difficult choice.
Advantages and Disadvantages of Paying Debt
There are a vast array of savings accounts on the market, from cash ISAs that allow you to access your cash instantly to longer-term savings accounts linked to the stock market.
Paying Debts: Advantages
The advantage of putting money into a savings account is, depending on the type of account, you can access the money fairly instantly. The main disadvantage, especially during times of economic instability, is that interest rates are likely to be unfavorable – the Bank of England cut the base rate to a record low 0.1% on 10 March 2020.
Debt can cost you more than you will earn in interest on your savings. However, by paying off credit card bills and other outstanding debts, you only have credit cards available instead of cash. And, withdrawing cash via a credit card can be expensive.
The range of savings products available means that everyone can take the time to find the right product for them. In order to maximize your money, save half to pay off debts. It allows you to have both benefits of paying less interest on outstanding balances. They offer smaller interest. It builds up funds that you can access in emergencies.
Shop around to find the savings account best suited to your needs if you do not already have one, and list all of your outstanding debts in order of how much interest you pay on each. Set yourself a target each month, and watch the total savings column increase and the outstanding debts column decrease!