COMMENT
How To Keep Your Savings When You're In Debt

A frequently asked question on our Dealing with Debt discussion board goes something like: "Should I use my savings to pay off my debts?" As debts usually cost you far more in interest than you gain on your savings, the simple answer is yes.

Setting aside special introductory offers, most credit cards charge typical annual percentage rates of between 10% and 20% and yet even the highest-paying savings accounts only shell out around 5.5%. Do the maths and it just doesn't make sense, as you pay far more interest on your debts than you'll earn on your savings.

The dilemma many of us have is that we tend to regard our savings as 'real' money whereas we see our debts as involving someone else's money. It's a weird psychological thing that many of us suffer from and the idea of handing over real money to a lender is hard to do even when we know it's costing us more in the long run. It's particularly difficult if those savings are held in an ISA because once you've withdrawn them, you lose the tax-free benefits on those contributions forever.

The only way round it is to try and make sure your debts are costing you the same or, even better, less than you're getting for your savings. The best way to do that is to transfer your debts to 0% credit cards so that they're free of interest whilst you're paying them off.

Alternatively, you could consolidate your debts using an ultra-cheap loan from the likes of Moneyback Bank or Northern Rock (both available via the Fool) who are currently charging just 5.7% APR. If your savings are held in an ISA, then the difference between the interest you can earn and cost of the loan is so marginal that, ultimately, you'd be better off keeping your ISA savings for the sake of the long-term tax-free benefits.

So, what are you waiting for?

• Find out more about Cash ISAs
• Check out the great deals for Savings, 0% Credit Cards and Personal Loans
• And find out how to use these deals to Get Out Of Debt.