Becoming debt free ‘should take precedence over saving’

In a week when the Bank of England’s Monetary Policy Committee will decide whether the cost of borrowing should rise or not, those who owe money but would like to move from being borrowers to savers have been advised to make debt reduction their priority.

Whether or not the base rate does increase, the amount savers can gain from putting money in the bank is a far smaller amount than the rates being charged by lenders. And a base rate increase may push up the expense of repayments as well.

This difference was noted by managing director at moneymaxim.co.uk Mark Bower, who said people – like the public sector – will take time to make the adjustment, but suggested the right prioritisation will help achieve this.

He explained: “It makes little sense to save at two per cent when there is currently a credit card bill to be paid at 18 per cent.

“What is important is that the credit card bill starts to fall – month on month – and, if possible, the debt moved to a cheaper repayment programme.”

Such debt consolidation may free up more cash to put towards savings or to pay off borrowing completely, which would mean there is nothing left to charge interest on and no more monthly repayments.

All of this can help get people debt free and look forward to being able to put cash once set aside for debt repayments towards saving for the future.

That many people want to do this was illustrated by a Scottish Widows survey revealing 38 per cent feel unable to focus enough on saving cash, albeit slightly down on the 39 per cent who said this was a major problem a year ago.

By James Francis