A clearer view of your money
Should I pay off debt or save?
€10,000 in savings at 4% a year. €20,000 owed at 6%. The maths points towards repayment—but interest isn’t the whole story.
The starting point
4% vs 6%Two balances. One decision.- Savings
- €10,000
- Loan
- €20,000
- Rate gap
- 2 percentage points
What does repayment actually save?
Focus on the €10,000 you could move. At 6%, paying that much off the loan avoids €600 of annual interest. At 4%, taking it out of savings gives up €400. The difference is €200 a year in favour of repayment.
€600 avoided − €400 forgone = €200
This is a simplified annualised comparison, not a loan repayment forecast. All examples below hold balances and rates constant for a year, use simple interest, and exclude tax and fees unless stated. A real amortising loan has changing balances: ask your lender for a repayment quote showing the effect on the term, instalments and total interest.
| Choice | Cash left | Loan left | Net yearly interest cost* |
|---|---|---|---|
| Keep the cash | €10,000 | €20,000 | €800 |
| Repay €5,000 | €5,000 | €15,000 | €700 |
| Repay €10,000 | €0 | €10,000 | €600 |
*Loan interest minus savings interest—not your annual loan payments. Keeping everything means €1,200 − €400 = €800; repaying half means €900 − €200 = €700.
Repayment does not instantly increase net worth. Your cash and debt fall by the same amount. Looking only at these two balances, €10,000 − €20,000 and €0 − €10,000 both equal −€10,000. What changes immediately is liquidity; the interest benefit builds over time.
The same rates. Different lives.
A separate reserve: repayment looks stronger
Alex has another €8,000 in accessible emergency savings, outside this example, and no repayment charge. Moving the full €10,000 would not empty that reserve. With today’s assumed rates, the €200 annualised interest advantage makes repayment a stronger option.
No other reserve: liquidity has a job
Sam’s €10,000 is their only cash buffer. Essential spending is €2,000 a month, so it covers five months. Repaying all of it leaves nothing immediately available for a repair or an interruption to income. The lower interest bill needs to be weighed against potentially needing to borrow again.
A partial repayment: not an all-or-nothing choice
Sam could instead keep €5,000 and repay €5,000. That preserves two and a half months of essential spending and improves the simplified interest position by €100 a year. It is a trade-off, not a universal recommendation: the right buffer depends on income stability, dependants and upcoming costs.
Accessible cash is different from money tied up in property, a watch collection or a locked savings product. MoneyHelper’s emergency savings guide explains the role of a buffer for unexpected expenses.
Compare what you actually keep and pay.
Tax can change the savings return. If, purely as an illustration, all savings interest were taxed at 20%, the €400 becomes €320. The repayment advantage becomes €280 before fees. Your local tax rules, allowances and any loan-interest relief may produce a different result.
A fee can erase the short-term benefit. Suppose repaying €10,000 costs €250. Against the original €200 first-year interest advantage, you would be €50 behind in that simplified first year. Later years may change the result. Do not compare a one-off fee with a yearly saving without considering how long the loan will remain.
Check withdrawal penalties or lost savings bonuses too. For the loan, distinguish future costs you can avoid from fees already paid. Keep contractual payments up to date whichever option you choose. MoneyHelper’s borrowing guide also highlights emergency access and repayment penalties when comparing savings with debt.
Use scenarios, not a crystal ball.
The 4% and 6% here are hypothetical rates, not current market offers. Start with your own contracts: is the loan fixed or variable, when does any fixed period end, and can the savings rate change?
- Savings fall to 2%, loan stays at 6%: repaying €10,000 has a €400 annualised interest advantage instead of €200.
- Savings rise to 5%, loan stays at 6%: the advantage narrows to €100.
- Loan falls to 3%, savings stay at 4%: keeping the €10,000 earns €100 more than the interest it could avoid, before tax and costs.
These are alternative full-year assumptions, not predictions. A rate change halfway through a year needs a time-weighted calculation. A lower advertised loan rate is not automatically available to you: refinancing may require approval and extra fees. A central-bank rate move need not change either of your rates by the same amount—or at all.
Revisit the decision when an actual offer or contract changes. Do not give up a necessary cash buffer solely because you expect rates to move. For background, the ECB explains how market conditions and central-bank policy influence interest rates.
Look at the whole balance sheet.
- 01
Separate your emergency reserve and known upcoming spending from money genuinely available for repayment.
- 02
Write down your current savings return after applicable tax, loan rate, and the dates either can change.
- 03
Get the lender’s quote for full and partial repayment. Check fees, remaining term and whether payments fall or the loan ends sooner.
- 04
Compare keeping the cash, repaying some and repaying all. Test less favourable rates without treating them as forecasts.
Put the decision on one page
Record the amount available after essential spending, your reserve target, contractual minimum payments, savings return after applicable tax, and costs of early repayment. Compare a partial repayment as well as the all-or-nothing choices.
Download the decision worksheet ↓
This manual CSV does not calculate a lender payoff quote. With multiple debts, the snowball-versus-avalanche example shows how payment order changes interest costs under a fixed budget.
General financial education, not personalised financial, tax or legal advice. All amounts and rates are illustrative. Check the terms and rules that apply to you.