Martin Lewis' MSE explains how anyone with credit card debt could save £190

25 August 2023 , 13:35

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Martin Lewis has issued advice to people with debt and savings (Image: Ken McKay/ITV/REX/Shutterstock)

Martin Lewis' MoneySavingExpert.com website has explained if you should pay off your debts more quickly - or put money into savings.

In an article posted on MSE, it was explained most people should pay their debts off, before they start putting away money into savings. The reason why, is because the interest you end up paying on a credit card over a year could end up costing you more than what you would earn in savings.

MSE gives the example of someone having £1,000 debt on a credit card and being charged 22% interest. This would cost £220 in interest over a year.

If you had £1,000 saved in a savings account at 3%, you would earn £30 over a year - this means you would be £190 better off by paying off the credit card debt.

There are some exceptions to this advice though. If you're locked into the debt, and you would incur a penalty by paying it off early - this often happens with some loans or mortgages - then MSE recommends leaving the cash sitting in a savings account. MSE also suggested you may want to leave money in savings if the interest rate on your debt is less than the amount you would earn in savings after tax.

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In an article updated in June 2023 on the MoneySavingExpert.com website, Martin said: “The rule is based on the fact that the cost of debt is usually much higher than the benefit gained from savings.

“Therefore your pocket gains more by getting rid of the debt than starting to save. The exceptions are in the few occasions when debts are cheaper than savings, or cost so much to pay off that there's no point.”

Martin Lewis recently issued an urgent “don’t delay” warning for anyone in debt or needing to borrow in the near future. The MoneySavingExpert.com founder explained how some cheaper credit card and loans deals are being pulled due to fears of further interest rate rises.

The Bank of England base rate is currently at 5.25% but there are fears it could climb further if inflation doesn’t fall as fast as expected.

Levi Winchester