Resolved Question

Advice on saving with debt.?

My son wants to save up to go travelling in Oct but he is still paying off a loan. I have recommended that he should pay off the loan outright first and then save, but apparently it would cost him an extra £29 to settle so he wants to just let it run for a year while he saves.
Whats best?
And what should be considered?

Additional Details

Paying it off would leave him with a £1000 overdraught at 18.9% The loan was at 11.3% and had a year left. He could work off the overdraught in a month.
Which is best?

5 days ago

Best Answer - Chosen by Asker

The interest he is paying on an outstanding loan is going to be far higher than the paltry interest he would get in a savings account. It is always best to pay off debts before trying to save. The £29 settlement fee is hardly here or there is it.

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Other Answers (2)

• Find your nearest Credit Union and get him to join that. If he saves with them until October, he might be able to have saved enough to borrow enough to clear his debt and still go away. I don't know how much he owes. The interest he would pay would be much cheaper than any bank. As he pays off his loan, he will also pay a small amount into a savings account as well. As the debt reduces, his savings increase and he can then borrow again.

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• Silly to put money in a savings account paying less then 1% interest while having outstanding debt with an interest rate of 12% or more. Pay the 29 it is still cheaper in the long run