Martin Lewis advised how people can check if they can save money on their water bills (Image: ITV)
Financial expert Martin Lewis offered crucial guidance to a caller on how to manage £1,000 in savings while dealing with credit card debt.
On , he addressed the delicate balance between financial priorities and emergency preparedness.
A listener named Maxine posed the question, seeking advice on the best strategy for paying off accumulated credit card debt while maintaining a safety net for unexpected expenses, such as a boiler repair.
Maxine asked: “Hi Martin I’ve heard you say before to pay off credit card debt first before saving. I also know the sensible thing is to pay your credit card off every month.
“But how do you pay off credit card debt which has accumulated while making sure you have liquidity for emergencies life for example a boiler or something. What’s the best way to pay down credit card debt and maximise savings for emergencies at the same time.”
Martin Lewis, reiterated his stance on prioritising debt repayment over saving. He said: “Maxine, you are quite right. I do always say you should absolutely prioritise paying off expensive credit cards before savings. You asked me about liquidity but I’m actually more concerned about having funds to pay. And I make that difference quite deliberately.”
The Money Saving Expert founder, Martin Lewis, illustrated a crucial financial strategy with a hypothetical situation: “Imagine you have £2,000 of debt on an expensive credit card that’s accrued and you want £1,000 to put in savings. In the way you’re explaining it you can’t use that savings to pay off the debt because you want to keep that savings aside for the emergency fund.”
He then outlined why prioritising an emergency fund over paying off credit card debt might not be the best approach: “Now, I’m in favour of emergency funds, but not while you have credit card debt. Here’s why. Take that £1,000 and pay it off the credit card. Your situation before was that you had £2,000 debt and £1,000 of savings – a net £1,000.
“Your situation now is you have £1,000 debt on the credit card and you have no savings. So what happens in the event of an emergency?”
Lewis argued that keeping the debt would actually put someone at a disadvantage, especially during unforeseen circumstances, and offered a straightforward solution: “Well, in an emergency, you’ve got £1,000 of room on your credit card and you go back and put it on the credit card again.”
He concluded by highlighting the financial benefits of this method: “That would leave you in no worse a position that you were in before – because you still had £2,000 credit card debt before – but in the meantime if there isn’t an emergency, you’ve got £1,000 less debt on your credit card that you’re being charged 25 per cent interest on which means more of your money that you are earning isn’t having to pay the debt interest and you’re better off.
“So by paying off the credit card, you’re still leaving yourself room to use those credit cards if you have to in an emergency – but in the meantime, you’re saving on them.”
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