This episode of the Your Recipe for Financial Success podcast was published on 8th April 2021. You can listen again by heading to our Episodes page, or on your favourite podcast player.

In this episode, Emma , Becky and Julie are putting saving and paying off your debts to the taste test.

Episode Highlights

So, should you be saving your spare cash or using it to pay off your debts? Well, generally, that will depend on whether it is good debt or bad debt and the interest rate you have. Here is everything you need to know at a glance.

• Good debt. These are debts like mortgages and student finance. They are often for a fixed period and have relatively low interest rate. This means you can budget each month for re-payment as the amount isn’t going to increase.
• Bad Debt. Debts accumulated on store cards and credit cards, for example. They have high interest and are often on variable rates too which means the amount you have to pay back each month can change.
• Think logically. If the interest on your debt is 7% but you could only earn 1% in a savings account, paying off the debt is going to save you more money in the long run. You will be adding more debt via interest rates than you would earn by putting it into a savings account earning 1%.
• There isn’t necessarily a right or wrong answer. Some people love the idea of paying off their mortgage early – even though the interest rate is relatively low and they could in fact make the money work for them better by placing it into a savings account. It’s often in the mindset of the person.
• Check PIPSI before saving. If you are considering saving and investing your spare money, remember to refer back to our PIPSI and 5 Steps to Plan your Finances episode to make sure you have considered all other aspects of your finances.

Don’t forget to check out our previous podcasts on our episodes page.