How terrible savings rates can help you reduce your credit card debt

By UK CreditCards.com

Interest rates have been at their record low of 0.5% for almost two years. Whilst this has been great news for many home owners, it has been a difficult time for anyone looking to maximise the return on their savings.

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Indeed, interest rates on savings accounts are so bad that some experts are advising that consumers pay off expensive credit card debt first -- rather than put their money away in savings accounts that pay little in return.

Repay credit cards, then save, says expert
Rather than put spare cash into Individual Savings Accounts (ISAs) or other instant access accounts, consumers should use their money to repay expensive credit card debt. That is the opinion of Richard Talbot, director of the charity Credit Action, which helps Brits with money education and debt advice.

"We would encourage people to have some rainy day savings," says Talbot. "But once they've got something put aside for emergencies then it would be a lot better to pay off the highest interest rate debt first."

With interest rates at a record low, the returns on many savings accounts are not even keeping up with inflation, meaning savers are actually losing out in real terms. Consequently, using surplus cash to repay high interest credit card debt may actually be a wiser use of money right now.

However, Talbot adds that a ‘balance of life' should be sought by all consumers. They should continue to save while paying off the money they owe.

So, if you are disappointed with the returns that you are getting on your savings, why not put them to better use? Finding a credit card with an excellent interest rate and using your cash to repay credit cards could actually be a much wiser use of your money.

See related: Should savings be applied to card debt?; Credit card interest rates highest since 2006

Published: 25 February 2011