I think saving when you have debts is sensible. If I have a loan for £1,000 over 10 months at £100 a month that is affordable that leaves me with enough to save £20 a month then yes, I could put an extra £20 and pay it off earlier.
However saving it means that if I had an unexpected bill of £60 in month 3 I could afford that. If I’d put this onto my loan each month then there’s no buffer for this - I can afford the loan repayment (which tend to be fixed even if you pay off more, you just finish earlier) but not the emergency bill.
Having a small savings buffer regardless of debt level is good, in my opinion.
It was just a hypothetical situation, the concept is really that paying off debts is great but people can get into even more debt by having not even a small amount set aside for emergencies, forcing them to take another loan or avoid payments etc.
This is the main thing I learnt from YNAB. I was so focused on my debt that I wasn’t saving anything, and then as soon as I had paid my credit card off I would be reaching back to use it again. Vicious cycle. I shifted my debt to a 0% credit card and paid the minimum across the whole term per month (which I found really hard to do because the voice in my head kept telling me to try and pay it off quicker) but the payoff in the long run was really worth it.
I think a credit card or overdraft also serves as a buffer for emergencies. If you have either of these then you can reap the benefits of reduced interest on your loan and clearing it quicker while still have a buffer should you need it
Student accounts with 0% ones don’t help. Some people have a £2,000+ overdraft at 0% for 4 years, then the 0% bit shrinks every so often until your left with ridiculous fees and an overdraft you can’t afford.
YNAB (US Budgeting software) makes it quite difficult to work with overdrafts and seems to make them appear worse than credit card debt!
Yeah, I fell for it, and also partly didn’t care at the time. I was enjoying myself as a student and not realising how awkward it is to get out of later.
Not visiting cash machines helps, when it says really big ‘you can withdraw £2051’ but you’ve actually only got £51. I really like how Monzo handles overdraft, the whole time it’s just a negative number, no mention of ‘you have X available to withdraw’
I don’t think 0% student loans (edit - overdrafts) are necessarily a bad thing - But if it encourages the attitude of “spend someone else’s money, and think about it later”, it doesn’t really set you up for life.
But the initial point was more about debt in general (not student debt), and whether it’s better to have savings, or pay off the debt.
The student loan is kinda separate (in my eyes at least), and belongs in a different discussion.
I enjoyed having the facility of a student overdraft and got too comfortable with it. I’ve actually only just paid it off a few months ago, but I did keep myself to a hard set £700 limit and used it as a buffer. I still have the account as a backup, but balance is nil.