Dosh dilemma: Siobhan’s inheritance quandary

Siobhan's mother recently passed away and she has inherited £20,000. Her partner believes the money should be used to pay off some of their joint debts, but Siobhan is leaning towards saving it instead, worried that she may need the money later in life.

What should Siobhan do?

Firstly, Siobhan, we’re sorry for your loss.

When it comes to inheritance, there's no one-size-fits-all answer. The money was left to you, so ultimately the decision is yours. However, there are a few important factors worth considering before you decide what to do with it.

Start with a conversation

Money can be an emotional topic, especially when it comes from a loved one who has passed away. Before making any decisions, it's important to have an open and honest conversation with your partner about your shared financial goals.

Are you both focused on becoming debt-free, building a retirement fund, or creating a financial safety net for the future? Understanding what you each want to achieve can help you find a solution that works for both of you.

Compare the numbers

One of the most important questions is: what are your debts costing you?

As a general rule, it often makes financial sense to pay off high-interest debt first. Credit cards, overdrafts and some personal loans can charge interest at rates far higher than anything you'll earn in a savings account.

By clearing expensive debt, you're effectively giving yourself a guaranteed return because you're no longer paying that interest month after month. It can also reduce financial stress and improve your monthly cash flow.

On the other hand, if your debts are relatively low-cost, perhaps a mortgage with a competitive interest rate or a student loan, then saving or investing the inheritance could potentially provide better long-term value.

Think carefully about your mortgage

If you're considering putting some of the inheritance towards your mortgage, make sure you check the terms of your loan first.

Many lenders allow a certain amount of overpayment each year without penalty, but exceeding that limit could trigger early repayment charges. Understanding the rules before making a large payment could save you money.

Is there a middle ground?

In many cases, the best solution isn't choosing one option over the other, it's doing a bit of both.

Using part of the inheritance to pay down debt can provide immediate financial relief by reducing monthly repayments and cutting interest costs. At the same time, setting aside some of the money in savings, investments or a pension can help provide reassurance and security for the future.

This balanced approach allows you to benefit from both short-term financial improvements and long-term planning.

Before making a decision, take some time to consider both the emotional and financial aspects. Look carefully at the interest rates on your debts, think about your future plans, and discuss your options openly with your partner.

For many people, a combination of paying off expensive debt while preserving some money for the future strikes the right balance. But whatever you decide, the most important thing is that the choice reflects your own priorities, values and financial goals.