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Savings plummet as borrowers pay off debt mountain

Savings fall as clearing debt takes priority

Managing finances

New figures show that the credit crunch is finally hitting home and worried consumers are taking drastic actions to reduce their debt mountain.

For the first time in eight-year study the nation’s focus shifts towards paying off debt rather than taking out new debt. For every pound saved in the last quarter, UK consumers also paid off £1.24 of their debt.

See the Which? guide to How to deal with debt for further advice if you’re struggling with your finances and if you’re looking to save Which? money reviews will help you find the best deals to suit your needs.

Paying debt comes before savings

During the third quarter of 2008 consumers paid off over £23 billion more in debt than they took out in new borrowing. But according to the research from IFA finder Unbiased.co.uk, paying off debt comes at a price – as it seems UK consumers are sacrificing their savings to get out of the red. Savings levels almost halved over the last quarter to an all-time low, from £38.5 billion in quarter two of 2008 to £19.3 billion in the third quarter – a reduction of over £19 billion.

The figures show that UK consumers have taken drastic actions in an attempt to reduce their debt levels. Consumers are now focused on paying off debt rather than accumulating even more.

Long-term planning means long-term money saving

Which Money editor Martyn Hocking said: ‘Of course, in an ideal situation consumers would be saving and paying off debts. But, it’s good to see that these new figures show common sense prevailing. If the interest you’re accruing on your debt is higher than the interest you’re making on your savings, then it makes sense to clear your debt and look at saving once you’re in the black again.’

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