Thursday, March 18, 2010
Category:
Consolidation
According to moneysupermarket.com, whilst savings rates are low and inflation is rising, savings could be better used by reducing credit card debts. It has been highlighted that only a few savings accounts generate enough interest to offset the effects of inflation.
The price comparison site’s calculations have revealed that there is a difference of £308 between the average interest earned on savings and the average sum of interest payable on the typical credit card. It was found that a credit card holder with an outstanding balance of £1,989, who makes minimum monthly repayments of 2.5 percent, would be repaying their debt for 22 years and 10 months. This would reportedly mean an overall interest charge of £2,490. In contrast, repaying an extra £20 per month would reduce the repayment period to 5 years and 7 months, and the total sum of interest repayable to £857.
Credit card expert at moneysupermarket.com, Peter Harrison, commented: "We know that times are tight for many households and some credit cardholders may just be repaying the minimum amount every month as a way of trying to minimise their outgoings. However, our calculations send a clear message to those who may also have some savings - simply by paying off a bit more every month, as little as £10 or £20, their overall interest bill and the length of time it takes to clear the balance entirely can be dramatically reduced.
"It goes without saying that if you are paying just the minimum amount on your credit cards then you should seriously review your situation. If you cannot afford to increase the minimum payment, then you should perhaps consider speaking to one of the free debt advice charities such as CCCS or Citizens Advice as they will be able to review your circumstances.
"Saving is still important and it makes sense for households to keep some money aside for a rainy day, but where savings rates are low, canny consumers can look at alternative ways to make their money work harder for them, whether this is through earning interest or reducing it elsewhere. Lenders are becoming increasingly choosy as to who they accept for a credit card so those people who are used to switching between 0 per cent cards could find themselves stuck on a relatively high APR when the interest-free period comes to an end. In this instance, it's important to clear that balance as quick as possible."
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Homeowners who are juggling existing credit card repayments each month, let alone increased repayments, could consider taking out a secured loan to consolidate. One of many finance options available, a secured loan for
consolidation could leave borrowers with just one monthly repayment as opposed to juggling several. Furthermore, this single monthly repayment could even be lower than the sum of current outgoings, therefore leaving borrowers with more money each month. However, if opting for a secured loan to consolidate debt, it should be remembered that consolidating your debt may increase the amount you pay back overall and extend the repayment periods of your debts.
