Consumers ‘better of paying debts before adding to savings’

Consumers have been advised that they are better off focusing on their outstanding debts than trying to add more to their savings pots.

According to Justin Modray, owner of financial website candidmoney.com, people should take a step back and, look at their arrears and focus on those with higher interest rates than they could earn from a savings account.

He noted that once the most expensive debts have been cleared, individuals should see that they set up a direct debit from their current account into their savings account of choice because this way they are going to be less tempted to spend the money before it is deposited into their kitty.

"To work out how much you can afford to save, work out an approximate monthly budget and try to stick to it, if necessary trimming back on a few luxuries," Mr Modray noted.

In terms of what sort of piggy bank to go for, the expert stated that a cash Isa is the best package for most people as it offer tax-free interest and competitive rates.

He also said that there are plenty on the market and so once consumers have cleared their high-interest debts they are free to shop around to find the best account for them.

Mr Modray explained that one way to avoid bad interest rates is by switching savings accounts when more generous deals run out.

"Keep an eye on the interest rate, as most banks and building societies use competitive rates to attract customers then subsequently cut them to paltry levels," he remarked.

This follows advice from lovemoney.com, which recommended switching to a nought per cent balance transfer credit card to reduce debts and to take advantage of 20 interest-free month offers on the market.

By Amy White