Clear debts or start saving?

Friday, 03 September 2010 04:02

A reader from Essex wants to know if he should start saving or clear his credit card debt first.

Andy McKechnie, head of sales and marketing for savings at Halifax, tackles the problem.

Tony from Chelmsford asks:

I’ve got debts of more than £5,000 on my credit card but I want to put some cash aside in a savings account.

What’s the best type of savings plan to use?

Andy replies:

Before beginning to build up your savings it is always recommended that you ensure you settle all your personal debts first – the debit interest accumulated on your credit card will be much higher than the interest you can earn on savings, so paying off your debts will make you financially better off overall.

I’d recommend speaking to a qualified Financial Advisor who can go over your personal options in more detail.

The right type of savings account for you will depend on a number of factors – such as how you operate your account and the level of access you require.

If you haven’t already done so, taking advantage of tax-free interest on a Cash ISA will mean you don’t give any of your interest away to the taxman. In addition, if you’re looking to start building up a savings next egg, regular savings accounts allow you to save little and often straight from your current account (typically from £25 to £500 a month).

These accounts often offer fixed interest rates, however you usually can’t access your savings for at least 12 months without loss of interest.

There are a lot of providers offering competitive rates on regular savings accounts – it’s worth shopping around to find the right account to fulfil your particular need.

If you have a question for Andy, go to the Ask the Savings Expert section.

Or for more information on your savings options go to savings at Halifax.

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