A common question many people ask when thinking about a debt reduction program is whether or not they should build up their savings first. While paying off credit card debt as soon as possible is going to help your overall financial situation, it's a good idea to put aside some savings in case of an emergency. Here's how you can do both.
Why you need to save
Paying off credit card debt and other bills as quickly as possible will reduce the total amount of interest you pay over time. But it is just as important to build a savings account, because you just never know what is going to come up.
While you won't earn much interest at today's savings rates, it is important to know that you'll have funds available for that auto repair, medical bill or other unexpected expense. Aim to set aside at least $500 to $1,000 in a savings account. You may have to make some sacrifices to put aside the funds, so be ready to make some cuts in spending if necessary.
Finding debt solutions
Once you begin to focus on debt reduction, it is important to find the right tools that can help. Among the strategies that may help you pay off bills is debt consolidation. A debt consolidation loan allows you to combine multiple debts into a single loan that lowers the amount of interest paid and the monthly payment. Debt consolidation programs should only be used if you are committed to not running up new debt on old credit lines.
Sometimes it can be overwhelming to try and put together a debt reduction plan on your own. If you are unsure where to start, consider working with a debt counseling firm. Look for a nonprofit debt counselor that gives you specific details about exactly how they plan to help you. A reputable debt counselor will help you budget money and put together a debt reduction plan. Some debt counselors may offer classes to help you learn about various financial topics.
Ultimately, it is best to find a balance between paying off debt and saving more money. But however you choose to structure a debt reduction and savings plan, be prepared to commit to it for the long haul because it will take time to reach your goals.
About the Author:
Francine Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows. Visit her Web sites www.Huffwrites.com and http://supersavvyspender.blogspot.com/.