Should I pay down debt now, or not

T

ToshyWashy

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Like everyone else, I am trying to make the best of the current circumstances, and reviewing finances etc.

Both my partner and I have permanent, public service roles, so fortunately we have retained our jobs etc despite Corona virus but curious as to how soon we can expect pay cuts and tax rises?

We have approximately 60k in savings, and wondered much of a rainy day fund we need, and also how much of it, if any, should we use to knock off our 2.5% mortgage.

If further down the line if our pay is cut, tax rises we can just reduce our discretionary spending on non essentials, and we had ear marked the 60k for home improvements, but think either leaving it be, or reducing mortgage is way to go.

Also, I read online talk of inflation/deflation with all this printed/borrowed money, what would the impact of this be on savings? Should we just pay off debt? If money becomes even cheaper for countries to borrow, what does this mean for our mortgage.

How safe are Irish banks with 60k in them?
 
Yes, you should pay off your mortgage unless you are going to do those renovations.

There are two risks to cash.

1) The banks go bust and the government goes bust - a small risk but it should not be ignored
2) Inflation - This is a real risk. Today , your €60,000 buys you €60k worth of goods at 2020 prices. After 100% inflation , your €60k would buy you €30k worth of goods at 2020 prices.

If your salary increases by 100%, and your property also increases by 100%, then you won't be affected.

But the least risk option is to use savings to pay down debt.

Brendan
 
ToshyWashy said:
How safe are Irish banks with 60k in them?
Click to expand...

Very safe. There is a bigger risk from inflation.

1) The banks go bust and the government goes bust - a small risk but it should not be ignored
Click to expand...

This risk is not small, it is microscopic. Banks are much better capitalised than in 2008 and the are all forced to issue debt instruments that are bailed in before retail depositors <€100k like you.



Otherwise, even in the bad years 2009-12 nominal income for public servants only fell about 10% due to pay cuts and tax rises. The real killer was for roles (health and justice for example) with a lot of overtime that got cut. That saw people down a further 20% in some cases.
 
My understanding is that there is a danger of hyperinflation. Therefore it's better not to pay down debt. And it's also good not to have cash. So to buy gold (which is nearly impossible apparently) or land/property.
 
NoRegretsCoyote said:
Very safe. There is a bigger risk from inflation.



This risk is not small, it is microscopic. Banks are much better capitalised than in 2008 and the are all forced to issue debt instruments that are bailed in before retail depositors <€100k like you.



Otherwise, even in the bad years 2009-12 nominal income for public servants only fell about 10% due to pay cuts and tax rises. The real killer was for roles (health and justice for example) with a lot of overtime that got cut. That saw people down a further 20% in some cases.
Click to expand...
Surely this is way way worse than the last crash. I heard it's costing 6 billion already the new dole. The tax revenue's are going to be decimated. And how long more can governments pay everybody to be off work. This cannot go on for months and months.
 
Paying down debt is never a bad option, IMO.

If we do see an uptick in inflation, then mortgage rates will follow.

If I was in the OP's shoes, I would pay a lump sum of €50k off the mortgage, leaving the term unchanged.
 
Bronte said:
Surely this is way way worse than the last crash. I heard it's costing 6 billion already the new dole. The tax revenue's are going to be decimated. And how long more can governments pay everybody to be off work. This cannot go on for months and months.
Click to expand...

Except central banks are printing money this time, they didn't the last time, especially in Europe.

As several have suggested, inflation is more of a risk than having your deposits seized.
 
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