Save Money, Pay Down Debt or Both

I'm going to share my views on whether you should pay off debt, save and invest or both at the same time. It certainly can be a dilemma to choose from. Do you reduce your debt or save? Which should you prioritise?

It will all depend on your financial situation and money goals, as for me I choose paying off debt. The reason I do is because it's our debts that stop us from saving more and investing in the first place. It's debt that erodes your money away. Without any debt you can save and invest your money with financial security.

Also you should already be automatically saving and investing a portion of your income through your company pension scheme. Be sure you take advantage of this and contribute as much as you can to your company pension.

Whether you save or pay down debt depends on the interest rates. If you have high interest debts above your saving interest rates then it makes sense to pay off debt. It a bit silly earning low returns on your savings and investments when you're paying 25% on the debt you owe. This is what I did with my saving and I even used my emergency fund to clear off my debt. While that may not be a great idea and I recommend everyone should have some savings just in case the unexpected happens using my savings saved me money on debt interest payments.

Since then I built my emergency fund back up again and have no intentions to spend it on debt again. Your emergency fund should be the first thing you ever save for and only be used when a financial crisis hit. Having one will prevent you from dipping into debt when you desperately need some fast cash.

You may also decide to pay off debt and work towards your saving goals at the same time. Maximising your savings, investments and balancing is against your debt is how you'll reach financial independence. It's certainly worth paying extra into your mortgage. The main thing to remember is to prioritise expensive debt and clear off your balance before saving and investing.

It's likely you have more debt than savings in your youth and you'll only have a certain amount of money every month to allocate to savings and debt. Either way, paying off debt or saving you'll be putting yourself in a better financial position.

Sure you should be saving however paying off debt means you're saving too. Every extra pound and penny you pay back reduces your interest payments which will save you a massive amount of money.

In the end you have to decide what is right for your circumstances, current situation and needs. For example if you're having a baby then you may want to focus on saving up for nine months to prepare for the birth.

Since I'm on a journey to debt freedom and running a debt blog and I'm always going to vote with paying off debt first over saving and investing. Being debt free opens up better investing growth. Once all your debt is gone you'll be able to do some heavy saving and investing without debt dragging your returns down. In the long run clearing our debts is the best financial thing for us.

Saving Money to Pay Off Debt

Clearing your debt fast involves finding ways to cut costs and reduce your spending so you can use that money to pay off your debts. You can also increase your income and pile the extra earnings into debt.

Since starting on my path to debt freedom I've reduce my outgoings in many areas and spent that money on my debts. Here is what I've done to save money for debt repayments, some of my actions may seem extreme to give up however killing off debt quick requires sacrifice:

·       First make your debt cheaper. Balance Transfer your credit cards to 0% interest free deals. Paying no internet clears your balance faster.

·       Find a better even a small 0.25% rate reduction adds up to massive savings over a long time period. If you don't have a mortgage you could search for a cheaper place to rent. 

·         Switch energy provider to reduce your gas and electricity bills at USwitch.

·       Buy cheaper alternatives where you can and consider second hand products. You'll pay more for top brand names and the latest releases.

·         Avoid restaurants, takeaways, coffee shops and cook at home. Take a packed lunch or bring your own food to work when you can.

·         Cancel the TV subscriptions. I got rid of my Sky TV package, yes I missed it for a while then I adjusted. If cancelling your TV viewing is too much then try cheaper options like NowTV.

·         Shop around for better phone and broadband deals. Sim only deals save on mobile hardware costs.

·         Ditch Amazon Prime if you don't really use it and those other expensive weaknesses that you overspend on like gadgets, video games, clothes.

·         Stop or at least cut down if you drink too much. This will benefit your body and give you extra energy levels.

·         If you smoke then quit. Tobacco is an expensive and an unhealthy habit, quitting will save you a fortune and you'll feel great.

·         If you're not travelling too far or needing to carry heavy loads then walk or cycle to save petrol. It will also help you to keep fit.

·         Do you have a job where you could work from home a few days a week? Ask your employer and if it's possible you'll save on food and petrol costs plus the travel time to work.

Doing all or most of these will help you eliminate debt faster. I also opened a debt savings account where money is saved and then paid into my debt.