Emergency Fund or Pay Off Debt First UK? The Honest Answer
Should you build an emergency fund or pay off debt first?
The maths says: Pay debt first. High-interest debt costs more than savings earn.
The research says: 60% of people who try "debt-first" quit within 6 months.
The practical answer: Save £500-£1,000 first, then attack debt. It costs slightly more — but you're far more likely to actually finish.
Here's the full breakdown with real numbers.
The Honest Comparison: What Each Approach Actually Costs
Let me show you the real maths. No tricks, no cherry-picked numbers.
Scenario: £5,000 credit card debt at 24.9% APR. You have £300/month for debt or savings.
| Pay Debt First | Save £1,000 First | |
|---|---|---|
| What you do | All £300/month → debt | £250/month → savings for 4 months, then £300 → debt |
| Debt-free in | Month 21 | Month 26 |
| Total interest paid | £1,200 | £1,750 |
| Extra cost of this approach | — | £550 more interest + 5 months longer |
On pure maths, debt-first wins by £550.
So why do financial experts still recommend saving first?
Why "Pay Debt First" Fails for 60% of People
The maths assumes you'll stick with the plan for 21 months straight. But research shows most people don't.
What happens in real life:
You put all £300 toward debt
Month 4: Car fails MOT. £450 repair.
No savings → goes on credit card
You feel like you're going backwards
You lose motivation and stop trying
When that £450 emergency goes on your credit card:
| Debt-First + Emergency | Saved First (Emergency Covered) | |
|---|---|---|
| What happens | £450 added to credit card | £450 paid from savings, rebuild over 2 months |
| Debt-free in | Month 23 | Month 28 |
| Total interest paid | £1,400 | £1,850 |
| Psychological impact | Setback. Progress reversed. High quit risk. | Handled it. System worked. Keep going. |
Debt-first is still £450 cheaper — but only if you don't quit.
The real question isn't "which costs less?" It's "which will I actually finish?"
When to Save First vs Pay Debt First
Save £500-£1,000 first if:
You have £0 in savings right now
You've tried paying off debt before and quit
Your income is unstable (self-employed, zero hours, tips)
You'd need to use credit for any unexpected expense
Emergencies have derailed your finances in the past
Pay debt first if:
You already have £500+ in savings
Your income is very stable
You have a genuine backup plan (family help, low overdraft rate)
You're confident you'll stick with it through setbacks
The Middle Ground: How Much Emergency Fund Before Paying Debt?
Don't save 3-6 months of expenses while you have high-interest debt. That costs too much.
The sweet spot:
| Amount | What it covers | Recommendation |
|---|---|---|
| £500 | Minor car repairs, small emergencies | Minimum before attacking debt |
| £1,000 | Larger repairs, one month reduced income | Ideal buffer |
| £1,500+ | Major emergencies | Too much while you have debt |
Stop at £1,000. Every extra £100 in savings costs you ~£25/year in credit card interest.
The Real Cost of Each Approach
Be honest about what you're choosing:
| Approach | Financial Cost | Risk | Who it suits |
|---|---|---|---|
| Debt-first | Cheapest if you finish | One emergency can derail you | Already have savings, stable income, disciplined |
| Save £1,000 first | £400-600 more interest | Protected from most emergencies | Starting from zero, need security to stay motivated |
The £400-600 extra isn't wasted — it's buying you insurance against quitting. If that peace of mind keeps you going, it's worth every penny.
Calculate Your Actual Debt-Free Date
Whichever approach you choose, you need a specific plan.
→ Calculate your debt-free date
DebtRiot shows you:
Exactly when you'll make your final payment
Total interest under different payoff strategies
What happens if you pay £50 or £100 extra
Which debt to pay first
The maths is precise. Enter your real numbers, see your real timeline.
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Frequently Asked Questions
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Mathematically: pay credit card first. Practically: save £500-£1,000 first if you have zero savings. The small buffer prevents emergencies from becoming new debt and keeps you motivated.
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£500 minimum, £1,000 maximum. Don't build a full 3-6 month fund until your high-interest debt is cleared.
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Only if you'd still have £500+ left. Emptying your savings completely leaves you one emergency away from going back into debt.
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Emergency fund first. ISAs are for long-term savings after you're debt-free and have 3-6 months expenses saved.
DebtRiot is a calculation tool, not financial advice. For debt help, contact StepChange , National Debtline or Citizens Advice.
