Why You Should Consider Paying Off Debt With Savings

Saving money and paying off debt are both crucial to achieve great financial health.

It’s good if you can do both, but if you’re struggling financially, you might be confused about which one you should tackle first.

Here’s an unpopular opinion – pay off the debt with savings!

But doesn’t dipping into savings put you at risk of going back into debt? Well, sometimes it makes sense to pay off the debts before saving.

Keep reading to understand how.

Interest Cost vs Interest Earned

Saving vs paying down debt boils down to calculating the opportunity cost of doing one thing over another.

Check out this scenario. You have a £2,000 debt in a credit card at 15 per cent APR and £2,000 saved up in a savings account at 1 per cent APY.

The interest cost for your debt is £300, while the interest earned on your savings is £20.

As you can see, the debt costs more than what the savings earn. In this case, you’re better off cancelling them out – so long as you have an emergency fund (see more on this below).

Understanding Your Debt

You probably have a variety of debt—most Britons do. Debt in any form can be overwhelming, but some debts are worse than others.

Term loans such as auto loans and revolving credit like credit card debt can affect your financial future differently.

How so? While term loans have a set deadline for repayment, revolving credit continue to roll over until they’re paid off. This makes revolving credit easy to get out of hand.

Annual percentage yield (APY) is what you earn on savings, while annual percentage rate (APR) is what you pay on the consumer debt you owe.

When the interest you earn from savings is more than the interest you pay on debt, it’s logical to pay off debt first.

How to Pay Off Debt

There are three main methods you can use to pay off consumer debt:

  1. Avalanche Method
    The avalanche payment method focuses on the debt with the highest interest, paying it off (while still making minimum payments each month on all other loans), and progressing to the next high-interest rate debt. The idea is to save you more in the long run.
  2. Snowball Method
    The snowball method starts with the bulk of payments being directed to your lowest balance first, paying it off, and progressing to the next lowest balance. The idea is that small wins will keep you motivated and reduce the number of payments you make.
  3. Debt Consolidation
    Credit card consolidation is another method you can explore. It involves transferring high-interest credit card debt to a new card with a lower APR. The stiff competition between credit card issuers means you can even negotiate your interest rate.

Benefits of Paying Off Debt First

Besides reducing the amount of interest paid overtime, there are other reasons to pay off debt with

  • It can help to improve your credit score.
  • Tackling debt can lighten a mental/emotional burden.
  • You can focus on saving and other areas once your debt is paid.

Can You Pay Off Debt and Save?

Yes, it’s possible but not the best idea.

Look at it this way. When you put your savings in a bank, you’re actually lending the bank money for it to lend to other customers.

The difference between the savings rate and the borrowing rate is the bank’s profit. This implies that it will always cost more to borrow money than you can earn by saving with the same bank. In other words, your bank is lending you back the money you gave them, except charging you much more.

There are, however, two exceptions: loan lock-ins were paying off a loan early incurs a penalty, and interest-free or cheap debt where the interest rate on your debt is less than the amount your savings earn.

Building an Emergency Fund

Before you start paying off debt with savings, it would help to first focus on building a rainy fund in a separate account.

Without a cushion to fall back on, you could simply end up adding more debt to pay for an unforeseen roof repair or a trip to the car repair shop.

The emergency fund should have 3-6 months’ worth of living expenses.


Carrying debt is a financial burden that can affect your credit score and your peace of mind.

If you have financial goals that will require good credit on the horizon, then it might be wise to focus on paying off your debt first.

The information provided in this document is an opinion and is for informational purposes only. It is not intended to be and should not be construed as investment advice. Seek a licensed professional if you are in need of investment or financial guidance.

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Jessica Matteo

Venture Partner



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Jessica is a former professional classical dancer, who now spends her time teaching all genres of dance at her own school in Yorkshire. She is also the creator and director of Luisa Matteo Home Fragrance, which was born in the lockdown era, and continues to thrive, Luisa Matteo Home Fragrance is a non-toxic, eco-friendly and handmade brand that Jessica makes personally in her workshop in Lightcliffe. Away from her working life she enjoys travelling, reading and supporting her football mad son and husband.

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Dominic Matteo is a Scottish former professional footballer who played as a defender and midfielder in a 17-year professional career from 1992 to 2009. He made a total of 366 league and cup appearances, of which 276 were in the Premier League. He was scouted by Kenneth Dalglish as a 9-year-old boy playing in Southport and went on to enjoy a 16-year tenure at Liverpool FC before joining Leeds United as their captain.

Dominic was diagnosed with a rare brain tumour in 2019, after lifesaving brain surgery and months of radiotherapy he is now raising awareness and funds to help others through his own charitable foundation Ahead of The Game, which he co-founded with fellow brain cancer survivor Dave Bolton.

Dominic now works in TV broadcasting and is an ambassador for Leeds United FC. In his personal time, he enjoys a pint with the lads down the boozer!

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Matthew has 15 years experience in the real estate sector working with developers, agents and investors – both on the client and delivery side. Matthew has vast experience in sourcing development sites with and without planning, or sites with capacity for planning gain – both on and off market and across the UK. Matthew has developed a reputation for being able to add value to existing sites with consent by improving unit mix, optimising unit plans and delivering additional capacity on both surplus and under utilised land. Having been involved in the acquisition, development and sales functions for a number of developers (both regional and national), Matthew has an acute understanding of the complexities of the development process and how to unlock access to additional revenue streams (entry and exit), complex financial modelling and exit strategy planning to meet, and improve upon, required financial returns.

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Following a successful career in corporate IT for several multinational enterprises, responsible for             multi- million pound infrastructure projects, Roger brings real-world experience of IT Technical Architecture, Networks & Security, and Systems Design to CurveBlock. Since 2004 Roger has been a property investor. In addition to this he founded a successful business in 2015, gaining useful experience in finance, marketing and other business skills. He is passionate about crypto and the many use cases and efficiency benefits it brings.

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Joey has many years of business management experience building successful teams and companies. Joey is also a Former Registered Investment Adviser with 37 agents geographically dispersed, and has built business from $0-$50M+ portfolios. This experience gave Joey deep understanding and knowledge within the Securities Compliance Arena. Working in the computing space for the last 10 year, and blockchain since 2016, Joey connects quickly with any target market and communicates well with all parties and publicly, which will have a substantial impact for CurveBlock around the world. Certificate of education in Blockchain and Digital Equity from University of Nicosia.

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With over 29 years construction industry experience, not only within the real estate development market but also other development sectors such as Commercial, Industrial & Agricultural developments. Along with Gary’s extensive construction experience & knowledge he’s also deeply involved in the world of Blockchain. Successfully scaled one of Europe’s largest building materials manufactories over 4000% leading to a private equity buyout during 2016.