When you are in debt and want to become Debt Free, it can be difficult to know if you should be using all of your spare funds to save or pay off debts. We all know that regular saving should be are an important part of our financial planning as they can offer a financial security for the future or in times of financial emergencies.

However, if you have debts then you might be wondering whether you should concentrate most of your spare funds on paying off your debts to become Debt Free as, due to the level of interest of both of these products, it could save you a lot of money in the long run.

In general, if you are having problems with your debts, or if you are left with a low disposable income once all your outgoings have been paid, then it could be a good idea to focus on paying off your debts so you can become debt free.

Becoming debt free by paying off your debts could save you money in the long term, because the interest on unsecured debt usually grows at a much faster rate than your savings. Typically the average interest rate on credit card debt is at 17.74%, according to Credit Action statistics for June 2009. Whereas research by the Conservative Party discovered that the average interest rate paid on £10,000 worth of savings is an average of 1.53%.

However, dependant on the debt type, if you decide to overpay or settle the entire debt early using your savings, make sure you ask your lenders about any early repayment charges. This does not apply to all debt, but is worth asking so you won’t have to worry about additional charges when trying to become debt free.

Savings can also provide you with a good ‘safety net’ if you need some money due to an unexpected cost, such as car repairs or household maintenance. Therefore if you feel that you are in control of your debts it can be advisable to save.

But the best financial decision must be made by you. You should have a good grip on your finances so you know how much cash you have to spare each month. It depends of you want to have some savings to fall back on or you would rather become debt free as soon as possible.

I Can’t Afford to Save or Pay Off my Debts.

If you cannot afford to save or pay off debts it is essential that you seek professional debt advice as soon as possible. There are debt solutions which allow you to pay off debts with a reduced monthly payment so that you can afford your debts (as all repayments to debt are calculated after outgoings have been accounted for).