Sometimes its better not to pay down your debt

In most cases the best method is to use your savings to pay off debts sooner.
When you save money in a bank, you are loaning your cash to the bank, this allows them to borrow it to other people. The bank makes its profit by the difference between the rate that it borrows money from you, known as the savings rate and the rate it charges others, the borrowing rate. As a result, it will cost you more to borrow then to save.

However there are small number of instances when debts are cheaper then your savings, or they cost so much to pay off that there is no point

Case 1: Interest free – For those who manage their debt properly by switching debt to interest free accounts should follow the opposite logic. The best way to explain this is for example, if the interest rate on your debt is less then the amount that your savings earn after tax, you can benefit from building your savings and keeping your debts. This will result in you making a profit on money borrowed to you by the banks.
Case 2: Penalties – If paying off your debt incurs a penalty, similar to many loans and mortgages then it is best to leave the cash in a savings account until the penalty amount is small enough that it does not matter.
Case 3: Emergency reasons – For anyone without debt an emergency cash fund is an easy and responsible thing to do. On the other hand, for those with outstanding debt, particularly on credit cards, it does not make much sense. When you are in deep credit card debt the best thing to do is use your savings, including any emergency funds you may have saved up.

You may not want to cut up your credit cards just yet, it is a good idea to keep them around incase of a true emergency such as necessary car or home repairs, and only use your cards if you have no other means of paying for it.

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