One of the most common money questions at this time of year, when the festive spending is behind you but still visible on your credit card statement, is should you build up your savings or focus on clearing your debts?
If you’re unsure, you’re not alone.
In many cases, interest on credit cards and overdrafts is far higher than the interest paid on savings accounts. That means having an outstanding credit balance can cost you more than your savings are earning. From a purely financial point of view, overpaying high-interest debt is often the quicker win.
But real life is rarely so black and white and money decisions aren’t just about the maths.
If you use all your spare cash to clear debt and have nothing set aside, an unexpected expense, such as a broken boiler or car repair, could send you straight back to borrowing. That’s why many people aim to build a small emergency savings pot at the same time. Even a modest amount can make a big difference, taking the stress out of an unplanned cost and helping avoid relying on credit.
It’s also worth looking at the kind of debt you have. High-interest credit cards and short-term borrowing are generally the ones that should be dealt with first. If you’ve got a 0% credit card deal, you may have a little more flexibility until the offer ends, although it’s important to have a clear plan to repay it before interest starts being added, if possible.
Your longer-term aspirations matter, too. Whether you want to save for something big, such as a home deposit, or something fun like a holiday, having a clear goal can be a motivator to put some money aside regularly. At the same time, keeping up with debt repayments and reducing balances can support a stronger credit record, which may help if you need to apply for a loan or mortgage in the future.
So, there isn’t one simple answer on whether to save or repay debt. For many people, it isn’t about choosing one over the other – it’s about balance. The best approach is the one that helps you feel calmer, more in control, and which steadily helps you move forward with your ambitions. Even setting aside a small, regular amount while focusing on clearing expensive debt can help you build confidence and good financial habits that last a lifetime.
And just a final note that if your debts feel overwhelming, free and confidential support is available from organisations such as StepChange and National Debtline.
