Better for you to slash your debts

Consumers have been warned to avoid putting all their money in savings if they are still repaying off their short-term debts.

Though a combination of high interest rates and a desire by local banks to increase the amount of cash in their vaults means there is now a wealth of savings deals on the market, financial adviser Paul Beadle says many consumers would probably be better off using any spare cash to slash their debt repayments.

Beadle, who is managing director of, believes that there are still plenty of good deals around for people with money to save, but the crisis on the global financial markets means that stock market investments for new investors are probably too high-risk at the moment.

He says unlike the US and Europe where there is a real worry about the future of client cash many financial institutions hold, there is a fair amount of safety in as far as the local banks are concerned as they have not been caught up in much of the sub-prime crisis and subsequent credit crunch.

But he dissuades consumers not to put all their money in savings if they are still repaying off short-term debts as the debit interest consumers pay on a credit card debt could be as high as 25 percent to 27 percent, while a store card debt could be 35 percent or more.

This is in contrast to the maximum of 13 percent the biggest balance could earn from a high street savings product.

For instance, paying off a R5000 debt on a store card charging 35 percent debit interest will save you R1750 a year.

Clearing a R10000 balance on a credit card with a debit interest rate of 25 percent will put R2500 a year back into your pocket.

He advises consumers to choose a bank account that pays interest, saying most bank accounts pay little or no credit interest on your cash.

Alternatively you should check out a rebate banking account that will repay some or all of your monthly bank charges if you maintain a minimum monthly balance.

Depending on how you use your bank account, the money you would save on bank charges could be more than you'd earn in interest - but the minimum balance is usually quite high at around R10000.

However, Beadle's advice is still save, save, save.

According to him, there are some great savings deals around at the moment, whether you want to lock your money away for a fixed period of six or 12 months, for example, or if you are looking for an account that pays a good return on your money, but gives you easy access to your cash.

He says there are some credit cards that actually pay you credit interest if you keep a positive balance, which could be good for the canny saver because paying with your credit card can be cheaper than racking up bank charges - except if you draw cash on your card.

But remember if you spend all your positive balance you will have to pay debit interest of around 24 percent or higher, so that's R1200 a year on a R5000 balance.

He says paying even a small amount into your mortgage is a great investment, saving you money and potentially reducing the length of your bond.

And, when hopefully property prices rise again, you'll get a better return than the average savings and investment account.

For example, paying off R10000 of a 20-year R1 million mortgage at a rate of 14,5 percent over 20 years will save you R128 a month, a total of R30720 over 20 years, bringing your monthly payments down to R12672.

But if you kept on paying the higher, pre-reduction repayment figure of R12800 a month, you could shave even more money off the total amount you pay, as well as reducing the length of your mortgage, depending on future changes in interest rate.