‘Half of me wants to keep some of the savings as a rainy day fund, but the other half just wants to debt gone by the middle of next year at the absolute latest’: Should I use savings to pay off debt?

Hi Money Minder,

Girlfriend in Debt here! So, the situation is I’m in deep with over £3,000 hanging over my head like a dark cloud. But guess what? I finally got access to £2,150 in savings! Yay me! My monthly income is £1,891, and I’m shelling out just under £900 for rent and bills every month.

Now, let’s talk about my debt. It’s divided into three lovely parts: £800 on those pesky credit cards (with a total interest of £90 per month), £2,000 in overdraft debt (interest is £50 a month), and another £500 overdraft from my student account (no interest for now, but that’s gonna change soon since I’m officially out of the student zone).

Here’s the dilemma – do I throw all my savings at the debt beast or tackle it strategically? Like, should I pay off the credit card debt first (and then say bye-bye to those credit cards), slowly chip away at the £2k overdraft, and finally focus on the £500 one?

I’m torn between keeping some savings for a rainy day (because you never know when life will throw lemons at you) and just wiping out the debt by next year. Can you help me figure this out, Money Minder?

Catch you later,

Girlfriend in Debt

Response from THE MONEY MINDER:

Hello There,

I understand how overwhelming it can be to have debt hanging over your head, especially when you have the means to start paying it off. The fact that you’re recognizing the need to address this is already a great first step. It’s commendable that you’re thinking about clearing your debts as soon as possible.

In your situation, it seems like the most practical approach would be to prioritize paying off the credit card debt first, as it is incurring the highest interest rates. After that, you can gradually work on reducing the overdraft debts. It’s important to cut up those cards once you’ve paid off the credit card debt to avoid accumulating more debt in the future.

Considering your monthly income and expenses, it might be wise to use a portion of your savings to pay off the debts. You could keep some of the savings as an emergency fund, just in case any unexpected expenses arise. Having that safety net can prevent you from falling back into debt in case of emergencies.

Remember, financial management takes time, effort, and discipline. It’s okay to seek help if you need it, whether it’s from a financial advisor or a budgeting app. Take small steps towards your goal, and gradually you’ll see progress. It might be tough, but it’s definitely achievable.

All the best from THE MONEY MINDER. Just take one step at a time, and you’ll soon see yourself moving towards a debt-free future.