Take advantage of rate cut, consumers told

9 October 2008

Consumers have been advised by an expert to take advantage of yesterday`s emergency interest rate cut.

During a special meeting, the Bank of England`s monetary policy committee slashed the base rate by half a percentage point to 4.5 per cent as part of an international effort to combat deteriorating credit conditions and the economic slowdown.

According to David Kuo, head of personal finance at Fool.co.uk, the reduction will benefit borrowers with 25-year £100,000 tracker mortgages by £31 per month.

However, rather than simply taking the extra money to spend elsewhere, Mr Kuo suggests that they make overpayments on their home loans, thereby reducing the amount of time they will be in debt.

He said: "By overpaying as little as £31 a month, borrowers can be mortgage free in 22 years and 8 months rather than 25 years."

The expert added that, unlike the government - which needs to make one "giant leap" to sort out its finances - consumers can do it by taking a series of "little steps".

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Gregory Pennington are founder members of DEMSA (Debt Managers Standards Association).

DEMSA are the first trade body within the finance industry to successfully secure approval for its code of practice under the OFT Consumer Codes Approval Scheme (CCAS).