Credit card customers could reduce the repayment term and amount of interest they pay on their balance by using some of their savings to increase the amount they repay each month.
Comparison website moneysupermarket.com has calculated that credit card holders who have savings could repay the average credit card balance a significant 17 years sooner and save more than a third on the average annual interest by repaying an additional £20 a month.
The average credit card balance is £1,989, the website says, which accrues an average £308 a year in interest or £2,490 over the 22 years and 10 months it would take to clear by repaying a minimum 2.5 per cent each month.
While most savings accounts continue to offer a pittance in the face of a record low base rate, moneysupermarket believes now is an appropriate time for consumers to shift priorities and use some of their savings to repay their costly debts.
Only a few savings accounts pay enough interest to offset the effects of inflation, the website's research has found, but meanwhile, credit card interest rates are creeping up.
Peter Harrison, credit card expert at moneysupermarket.com, said: "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."
The calculations show that the money sitting in savings accounts not earning much interest could be better used elsewhere, saving credit card holders money and cutting years off their repayment period.
"It goes without saying that if you are paying just the minimum amount on your credit cards then you should seriously review your situation," Mr Harrison continued.
"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."
© Fair Investment Company Ltd
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