Consumers ‘saving instead of repaying debts’

Britons are putting their money into savings accounts rather than paying off their unsecured loan, overdraft or credit card debt, it has emerged.

Research from financial services comparison firm moneyspermarket.com reveals that 66 per cent of people with debts incurring interest also have a savings account, with some admitting to paying money into their savings despite their debts to make themselves “feel better”.

Kevin Mountford, head of savings at the firm, said: “It’s not a bad idea to have something set aside for a rainy day or an emergency, with the general rule of thumb being around three months’ salary.

“But savers should always consider their whole financial scenario before putting too much money away, especially if they have debt they are paying interest on.”

He added that with the interest on loan debts at around 7.9 per cent and credit card interest at approximately 15.9 per cent, it’s important to have an interest rate of at least six per cent in a savings account.

In October 2007, MoneyExpert revealed that over three-quarters of credit cards use an order of payments rule to clear cheaper debt before paying off debts at a higher interest rate.