Saving Money When You're Repaying Debt

The following is a guest post.

In an ideal world, none of us would be carrying any debts, and we'd all be able to pay a reasonable/meaningful amount of money into our savings accounts every month.

Unfortunately, this is only a reality for certain people. More and more of us are having to cover costly debt repayments on a monthly basis - and this can take up a considerable amount of our 'spare' money (the money left after we've covered our essential costs), often leaving us with little or no money for savings.

Can you actually save money when you're in debt?
The simple answer to this is 'yes', but there are certain things you will have to consider before deciding whether to save money or not.

First of all, remember that the longer it takes to repay your debts, the more interest you'll pay. Any money you put towards savings could, in theory, be put towards your debts to reduce the overall time it takes to repay them, as well as the overall amount you pay.

For this reason, some experts recommend that you always repay your debts before you start saving - but you can actually do both as long as you are financially comfortable. You may end up paying more overall by repaying your debts more slowly (than you would if you focused solely on repaying your debts), but this may be worthwhile for the financial security your savings could provide.

Just bear in mind that debt almost always accrues interest faster than savings - but not quite always, and if the interest rate on your savings account is higher than the rate(s) on your debt(s), you could actually be better off if you focused on saving and repaid just the required minimum amount towards your debts for the time being.

What if you can't afford to save and you're struggling to repay your debts?
If your debts are unmanageable and you can't afford your monthly payments (let alone contribute money to a savings account), you should seek professional debt advice. You may find that a debt solution such as an IVA (Individual Voluntary Arrangement) may be suitable for you (if you need the IVA process explaining, a debt adviser will be able to do this).