Using Savings Could Reduce Cost of Debt

Greater Manchester, United Kingdom, April 17, 2010 --(PR.com)-- After research from Unbiased.co.uk found that Brits borrowed 62p for every pound they saved in the final quarter of 2009, Debt Advisers Direct advised borrowers to take care over their debts, and emphasised the benefits of using savings to pay off debt where appropriate.

Unbiased.co.uk's figures revealed a rise in borrowing and a sharp fall in savings in the last three months of 2009, and predicted that this trend would continue throughout 2010.

By contrast, borrowers were paying back £1.68 of debt for every pound they saved by the end of 2008.

An expert at Debt Advisers Direct said:

"The figures suggest that people are becoming more confident with their finances, which is positive in many respects. Borrowing is vital for economic recovery, and as long as the borrower is sure they can afford to repay the debt, there shouldn't be any problems.

"But it's important that people have a clear plan for repaying their debts. Most loans will provide a structured repayment plan with an expected finish date, but others, such as overdrafts and credit cards, make it easy to simply service the debt (paying only the interest) or pay back the debt slowly - which can be tempting on a monthly basis, but expensive in the long run.

"Where possible, we'd advise people to consider using savings to pay off debts. Interest on debt grows much more quickly than on savings in most cases, so paying off debt first can cost much less in the long run. However, this is not appropriate for everybody, and we would urge anybody with savings to consider how they would cope with a change in circumstances - for example, unemployment - before they commit savings to settling their debts.

"A borrower with more than one debt, especially high-interest debts such as credit and store cards, could benefit from a debt consolidation loan - a new loan that pays off multiple existing debts, leaving the borrower with just one monthly repayment.

"Debt consolidation loans often come with a much lower interest rate than credit and store cards, so they could save the borrower money - although paying the loan back over a longer period of time would limit the savings they could make.

"But debt consolidation is designed to help with manageable debts. If the borrower can't afford their debt repayments, they'll need to look at debt solutions designed to help reduce repayments, such as a debt management plan. Or if their situation is more serious, debt write-off may be more appropriate, for example through an IVA [Individual Voluntary Arrangement] or bankruptcy."

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