What to do with spare money in Europe, and in what order

Most months, something’s left. Not a fortune. It sits in the current account earning roughly nothing, while you tell yourself you’ll look up what to do with spare money. Shortly. After this other thing.

Where an employer or the State tops up what you pay into a pension, that free money can be worth years of overdraft interest. Say your employer adds €1 for every €1 you pay in, and you count only half of it, for tax and fees. At euro-area average rates for August 2026, from the European Central Bank (ECB), that half still covers just under 7 years of overdraft interest (82 months). On a credit card, it’s about 3 years (36 months).

But a euro paid in instead of off the debt stays on the debt until you clear it. So collect the match first if the debt will be gone within its time limit, and clear the debt first if it won’t. Either way, keep up every minimum payment. If a payment is already behind, the order stops applying and different debts come first.

Start at the top and work down:

1. Work out what’s left once the bills are paid without a squeeze.
2. Put a small starter cushion somewhere you can reach today.
3. If someone tops up what you pay into a pension, collect that slice first, but only if the card, overdraft, or buy-now-pay-later you’re clearing will be gone within its time limit. And only while every minimum payment is covered, nothing is behind, and your income looks steady. In Germany from 2027, if your contract takes one-off payments, extra payments go on the debt during the year, and the year’s first €360 goes in with time to spare before the year ends. Anything more waits until the expensive debt is gone.
4. Clear expensive credit cards, overdrafts, and buy-now-pay-later that charges interest, dearest first. Money overpaid on a loan can’t be borrowed back, so expensive loans come after them. If your income could drop soon, grow the full cushion before you overpay a loan.
5. Grow the cushion to its full size.
6. Keep money you’ll need within a few years in savings.
7. Invest for the long term, in a tax-favoured account if your country has one.
8. Then the judgement calls: more pension, more investing, or overpaying a cheap mortgage.

If nothing is left most months, start the cushion anyway, with whatever you can.

What counts as spare money?

Spare money is what’s left once everything that has to be paid is paid. That includes the bills that only turn up once a year, like the car insurance that arrives every March as if nobody could have seen it coming.

Take a few ordinary months, including one where something broke, and work from those. If you work for yourself, take off the tax and social contributions you’ll owe on what you earned before you count anything. That money was never spare. What’s left on average goes through the order, the same way every month, until a step is done.

Do you need savings before you clear the overdraft?

Save a little first, then pay off expensive debt. A small starter cushion stops the next broken appliance going straight onto the overdraft you’re trying to clear.

That starter cushion is the first slice of an emergency fund. It’s modest. Ireland’s money advice service MABS suggests €500 to €1,000 as a good starting goal, and says even €100 can make a difference ↗ (opens in new tab). It’s the bit that stands between you and the next washing machine, which won’t check your balance before it dies.

Keep it somewhere you can reach today, in a bank account. Money in an EU bank is protected: deposit guarantee schemes cover up to €100,000 per person, per bank ↗ (opens in new tab). The cushion won’t get anywhere near that.

Should you pay into a pension or clear debt first?

Pay in first only for the money someone tops up, and only if the debt will be gone in time. Keep up the minimum payment on every debt, always. Everything above the topped-up part waits.

The beer-mat test compares how long the debt will take to clear with how long the top-up covers its interest. Halve the top-up per euro and divide by the debt’s yearly rate. That’s the time limit, in years (times 12 for months). For a €1 match against the ECB’s euro-area average overdraft rate of 7.28% ↗ (opens in new tab) for August 2026, it’s just under 7 years. Ireland’s auto-enrolment and Germany’s 2027 State allowance get their own time limits, in the table below.

Then time the debt, counting from today. Months to clear = what you owe ÷ what you’ll pay off that debt each month while you’re also paying in (don’t add interest; the time limit already allows for it). If anything is ahead of the debt in the queue, the starter cushion or another debt, add the months that takes. Owe €2,000 and pay €100 a month off it, and that’s 20 months, well inside 7 years, so the match goes first. If your payment barely covers, or doesn’t cover, the interest, you’re paying the lender rent on the debt rather than clearing it, and it goes first.

The halving is there for fees and for tax on everything that comes out of the pot, your own money included. With no fees, it covers tax of up to 25% on a €1 match, only about 16% on a 50-cent top-up, and 10% on a 25-cent one. Pay more tax than that, or get more than about €1.15 of top-up per euro, and the real time limit is shorter than the test gives. Any fees eat into the same half, so they lower all three tax figures.

These are Money Owl’s own calculations from ECB average rates and the top-ups the law sets, with no investment growth counted. If your card or overdraft costs more than average, the time limit shrinks in proportion. Work it out with your own rate.

The starter cushion still comes first. A pension can’t pay for a flat tyre. Money that earns no top-up is ordinary locked-away saving, and it waits for step 8.

Whatever you pay into a pension first is locked until retirement, while you may still owe on the debt. Lose your income halfway through and the pension can’t pay the card; only the cushion can. So if your income could drop soon, or swings from month to month as self-employed income can, build the full cushion before you choose to pay in ahead of debt.

Ireland’s auto-enrolment works differently: contributions come out of each payslip as a share of your pay, so a drop in pay lowers them by itself. Pausing them (possible after the first 6 months) stops the employer and State money too, and you then wait at least 12 months to restart. In Germany, with a contract that takes one-off payments, a top-up you skip while building the cushion is one you can catch up by the year end, but not after it ↗ (opens in new tab). And like any pension, the pot is invested, so its value can fall as well as rise.

I’ve paid into employer pension schemes in the UK, Ireland and Gibraltar. In Ireland and Gibraltar I took the full employer match. My UK salary, set against the cost of living there, didn’t stretch that far, so I paid in 2% and my employer matched the 2%.

What if nobody tops up what you pay in?

Check your country too, not just your employer. Germany’s new State allowance, from 2027, needs no employer scheme: you open the contract yourself, with a bank, an insurer, or another provider. It’s mainly for employees paying into the statutory pension scheme; in Germany, some self-employed people qualify too. If nobody tops up, skip the step. It’s the quickest one on the list.

Where do Ireland, Germany, France, and Italy change the order?

Ireland and Germany set the top-up in law. Dull of them, but it means the time limits can be worked out. In France and Italy the employer or the collective agreement sets it.

Figures as of 13 October 2026. Top-ups in the table are gross: locked until retirement, typically taxed when paid out, and invested, so the pot can fall as well as rise. In Ireland, up to 25% of the pot can come out as a tax-free lump sum ↗ (opens in new tab), and the rest is taxed as income ↗ (opens in new tab). The time limits, Money Owl’s own calculations, use each country’s own ECB averages for August 2026, except Ireland’s card figure.

In Germany, if the child share is paid to you, the first €300 of the €360 earns it, and that €300 has longer time limits. With one-off payments, if you pay €100 or more a month off the debt, they’re 19 months (card) or 34 (overdraft) for what you’d still owe after paying the €360 in, counting from the year-end payment. At €35 to €99 a month, they’re 14 (card) and 19 (overdraft), counted the same way. Below €35 a month off the debt, the one-off limits weren’t worked out, so the cautious choice is to clear the debt first and put the €360 on it. With fixed monthly payments only, the child-share limits are 34 months (card) or 63 (overdraft), counting from today. All of these limits assume the same pension tax, up to about 24%. Higher pension tax makes them shorter.

There’s a guest list, of course. Ireland’s auto-enrolment is for employees aged from 23 and under 60, earning €20,000 or more a year, with no pension through payroll (Citizens Information ↗ (opens in new tab)). Germany’s allowance covers employees in the statutory pension scheme, civil servants, and other groups the law lists. Self-employed people under 67 with business or freelance income who file a tax return for that year are covered too, from 2027.

An old Riester contract keeps its old rules unless you tell your provider to switch it (which can’t be undone) or open a new state-certified pension contract from 2027, which ends the old contract’s protection.

What about France and Italy?

France leaves it to the employer’s plan, which is French for ‘go and ask’. If your employer tops up a company savings plan (abondement), French law lets it add up to three times your payment, within a yearly ceiling ↗ (opens in new tab).

Ask your plan first whether a payment made late in the year gets the same top-up as one made in January. If it does, the expensive debt can come first, and you pay in before the plan’s deadline, as long as what you’d still owe after paying in clears quickly. If it doesn’t, run the beer-mat test on your plan’s own figure. At the full three times, the real time limit is about half what the test says. The money is invested, so it can fall as well as rise, and locked for five years, with early release in some cases, including if your job ends.

Italy may have signed you up without asking. If your first private-sector job started on or after 1 July 2026, you’re enrolled automatically in the pension fund your collective agreement names ↗ (opens in new tab). Domestic workers aren’t, and nor, according to the pension supervisor COVIP, are people on fixed-term contracts of under 60 days. You have 60 days to say no. If the agreement adds an employer contribution, the beer-mat test decides where it goes. The fund is invested, so it can fall as well as rise.

Outside these four countries, run the same beer-mat test on whatever top-up your employer or country offers.

Should you pay off debt or invest first?

Pay off expensive debt first. Clearing it earns its full interest rate, with certainty, which no investment promises. So investing waits until step 7. It’ll cope. Expensive debt means borrowing that isn’t secured on your home and costs well above what your savings pay.

Look at one line of your loan statement, the yearly interest rate, and see if it’s well above what a bank gives you on savings. A genuine 0% deal doesn’t count, until it stops being one. In August 2026 the euro-area average overdraft cost 7.28% a year, and the ECB’s average agreed rate on new consumer and car loans was 7.92% ↗ (opens in new tab), while savings you can withdraw at short notice paid 1.28%.

Clear a card or an overdraft and the credit line stays open for an emergency, though the lender can cut the credit limit or close the line. Overpay a loan with fixed instalments and that money can’t be borrowed back; whether the monthly payment then drops or the loan ends sooner is down to the contract. So the card and the overdraft go first, dearest first. On the ECB’s averages, that’s the card. The lender will miss it.

If your income could drop soon, build the full cushion before you overpay a loan, even though the cushion earns less than the loan costs. A fixed-term contract ending counts, and so do a shaky job, a baby on the way, and self-employed income that swings.

When I was younger I’d often live on the edge of a zero balance, and sometimes I went into my overdraft. My overdraft in Slovenia was expensive, so as soon as I had the money, I got out. I got my first credit card only once I understood money a bit better, and I’ve never used it for credit; the balance gets paid in full every month. The loans were another matter. I had some at 10 to 12% interest, and with little cash to spare I paid them exactly as the agreement said, and not a cent more.

Can you repay a loan early?

You can repay a consumer loan early, in full or in part, whenever you like, and pay less interest as a result. Under the 2008 EU consumer-credit directive ↗ (opens in new tab) and its replacement for agreements made from 20 November 2026 ↗ (opens in new tab), a lender can charge a fee only on a fixed rate. The fee is capped at 1% of what you repay early (0.5% with a year or less left), and never more than the interest you’d still have paid. A country can let a lender claim more if it proves a bigger loss. Overdrafts carry no such fee. It’s the nicest thing there is to say about them.

What if you’re already behind on payments?

If you’re already behind on payments, the order stops applying. Ireland’s money advice service calls the debts that come first priority debts ↗ (opens in new tab): the ones where falling behind could mean losing your home, having your utilities cut off, or legal action. The service puts them ahead of credit cards, personal loans, and overdrafts, where the results of missing a payment are usually less immediate.

Talk to a debt adviser early. In Ireland, MABS describes its service as free ↗ (opens in new tab). Germany’s consumer centres say recognised debt counselling (Schuldnerberatung) is free or low-cost ↗ (opens in new tab). France has the Banque de France’s over-indebtedness procedure, which is free ↗ (opens in new tab). In the Netherlands, your municipality offers free debt advice and help ↗ (opens in new tab). Elsewhere, look for independent or public debt advice, not a firm selling you a loan. From 20 November 2026, EU consumer-credit rules ↗ (opens in new tab) will require every member state to make independent debt advice available, with only limited charges. Ask what it costs before you agree to anything.

How much of what’s left over goes where?

There’s no fixed split, whatever the percentage-rule posters say. It’s a queue. Each step gets the money until it’s done, then the next one does.

Take an illustrative case. Say €300 is spare every month and nothing is saved yet. A credit card carries €1,200 at the ECB’s euro-area average credit card rate of 16.54% ↗ (opens in new tab) for August 2026. That costs about €200 a year. In this example, its minimum payment is already one of the bills, and it covers at least each month’s interest, so the balance doesn’t grow while it waits. If you already collect Ireland’s auto-enrolment top-up, leave it switched on. A card gone by month six is well inside Ireland’s 42 months.

In months one and two, €600 goes into the starter cushion. Months three to six, €1,200 on top of the minimum clears the card. From month seven, the €300, plus whatever the minimum payment used to take, builds the full cushion until it’s the size your sick pay and benefits call for.

How big should the full cushion be?

Big enough to cover what your country’s safety net doesn’t. A flat “three to six months” rule forgets most employees aren’t starting from zero. Sick pay and unemployment benefit already cover part of a bad patch, and how much depends heavily on where you live.

If you work for yourself, that net may be thin or missing. Where it’s missing, your cushion starts from zero.

Check what sick pay and unemployment benefit would pay you, for how long, and after what wait. Size the cushion to the gap. How to build an emergency fund covers the sizing. The state is part of your cushion. It comes with conditions printed on the back.

A long illness, or a death in a family that relied on your income, is more than a cushion is built for. That’s what income protection and life cover are for: the first for your own income through a long illness, the second if anyone depends on you.

Should you save or invest first?

Save first. A starter cushion, then the full one, and anything you’ll need within a few years stays in savings too. Invest only money you can leave alone for years, after expensive debt is gone and the top-up that passes the test is collected.

On the ECB’s 2023 household survey ↗ (opens in new tab), 99.1% of euro-area households hold money in a bank account and 14.2% hold investment funds. The Dutch regulator, the AFM, found around 800,000 Dutch households with enough to invest who don’t, even though they may fall short of money later on. Its May 2026 press release ↗ (opens in new tab) says households like these miss out on opportunities for higher returns, and that investing may be appropriate for them. Higher returns aren’t promised: investments can fall as well as rise.

A house deposit, say, or the next car: if you need it in two years, it goes in savings. The AFM tells would-be investors to think of a minimum term of three to five years ↗ (opens in new tab), which rules out both. For those who do invest, the AFM’s press release says what matters:

It is important that households invest only money that they can spare in the long term, diversify sufficiently (both across products and over time), and are aware of the costs.

Autoriteit Financiële Markten (AFM), press release, 1 May 2026

Is it worth investing a small amount each month?

Yes, once the earlier steps are done, provided the costs are small next to the amount. Check what you pay per purchase and per year before you worry about how much to start with.

Say you invest €50 a month and pay a flat €1 each time. That’s 2% gone before a cent is invested, a steep price for the crime of starting small. Someone investing €5,000 in one go pays the same euro. The fee is charged per purchase. A percentage fee scales with the amount instead, so it shrinks when you do.

Investing is for money you can leave alone for years, because its value can fall as well as rise and you may get back less than you put in. What it returns depends on the fund’s performance and its charges. Use a tax-favoured account where your country offers one. Check that whoever you invest through is authorised: ESMA, the European Securities and Markets Authority, keeps EU-wide registers you can search ↗ (opens in new tab), and your national regulator keeps its own.

What do you do with spare money once the cushion is full?

There’s no right answer from here, a relief after seven steps that had one. The next euro can go onto the mortgage, or into a pension or investments. Tax, your mortgage rate, and when you might need the money do most of the deciding; your nerves get the casting vote.

Overpaying a mortgage earns its interest rate, guaranteed, and nothing more. Compare it, after tax, with a similarly safe investment. The ECB’s average rate on existing euro-area mortgages was 2.54% in August 2026 ↗ (opens in new tab), cheap money next to an overdraft. Check your contract for early-repayment terms before you start. In the Netherlands, where owner-occupier mortgage interest is tax-deductible ↗ (opens in new tab), overpaying a qualifying mortgage earns less than its headline rate.

Now that I’m paying off a mortgage, I overpay when I can, but only once my cash would cover a drop in income or a surprise bill. The overpayments cut the monthly payment first, down to a level I’d be comfortable with if my income dipped. Only then do they start cutting the years. Cutting the years first would cost less interest overall. I chose peace of mind. Set against investments of similar risk, after tax, overpaying wins for me in 2026. I still invest part of my surplus, plus the dividends from what I already hold. If I’m honest, that’s fear of missing out.

Where do you start this month?

Free money worth years of overdraft interest is the one item on the list someone else pays for. It’s also the easiest to leave uncollected. This month, find out whether anyone tops up what you pay into a pension, and whether you’re collecting the part that passes the beer-mat test. One look at a payslip, or one email to payroll, should tell you. If nobody tops anything up, start with the cushion; if a payment is already behind, start with a debt adviser. The rest of the order will keep; it’s been keeping for years.