Is it Better to Pay Down Debt First, or Work on Building Your Savings?

If you're drowning in debt, it can seem absurd to even think about working on building your savings. How can you save money if everything you make is going to bills and living expenses, while at the same time, you're struggling to pay down your debt as well?

Yet if you don't have at least an emergency fund for a cushion, you are living on the edge. Just one unexpected added expense can cause a financial crises. A raise in rent, your car breaking down, the washing machine going on the fritz.

So what can you do? Should you work on getting your debt form medical bills, credit cards and other types of debt, or should you focus of creating a financial cushion before anything else?

Maybe it doesn't have to be one or the other. It's possible that you can do both.

You can create a financial plan that both pays off your debt, and builds up your savings at the same time.

Start by getting your financial records in order. Get out all of your bills, bank statements, and other financial records. Make sure you know exactly how much you owe to whom, and how much income is expected to come in through work, child support, social security, or investments.

Next, form a plan.

Speak to a financial advisor to see if your debts can be consolidated, or see if any of your debts can be paid with a payment plan. Try to get your monthly payments low enough that you have extra money left over for your regular bills and living expenses, and possibly enough left over to start your savings.

Once you've figured out the best method to pay off your debts, you can work on creating a savings plan as well. If your budget doesn't leave enough for savings, you will need to investigate your options.

You will either need to cut expenses, gain further income, or both.

You can cut expenses buy giving your expenditures a critical look. Is there any way to lower any? Can you give up certain unnecessary things like TV, Internet, or extra phone lines? Perhaps you can learn to shop more frugally for groceries, clothes and gifts.

There are many ways to save money if you really try.

You can also try to increase your income. Maybe you can look for a second job. There are plenty of ways to get extra money with out getting a job as well. You can make money writing online, chopping and selling cords of wood, cutting people's hair, baking wedding cakes, babysitting.

You can pay off your debt and increase your savings at the same time if you really look for ways to do it. You will feel more security as your financial cushion grows, at the same time that you watch your debt shrink bit by bit.