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The newest recession has had one positive result - it has converted many Americans from debtors to savers. Many individuals who were net debtors (borrowing more cash than they were saving) are now net savers, yet they are still loaded with the debt that they accumulated. Saving money while reducing debt is challenging for even the most disciplined person, and without a strategy in place it’s not difficult to mess up which can wipe clean your progress.

The age-old question as to whether its better to allocate your cash to savings or debt reduction remains open as it really is dependent upon your individual situation. If you apply simple math to the question, it might seem clever to pay off debt that is costing you 18% interest if the alternative is to save your cash in an account that earns 1 percent. The same math will tell you that choosing to save would amount to a fast loss of 17% on your money.

Therefore is it better to pay down pricey debt as fast as possible so you can then start allotting your cash to savings? Yes and no. Certainly the target of anybody in debt must be to get out of debt quick but should it be at the entire expense of savings? There are at least two areas of savings that you should not renounce when trying hard to reduce your debt :

Short Term Emergency Savings

Many people end up in debt because an unexpected expense comes up requiring a chunk of money and they have nothing put aside to cover it. Often times it is a huge bite, such as for a medical expense, a major automotive repair, loss of earnings due to a layoff or an incapacity. Additionally, it is not uncommon to experience more than one unpredictable event within a brief period of time.

Most fiscal planners would agree that you need to have an emergency fund available that could cover at least half a year  worth of living needs. Setting up an automated savings program thru an online savings account can ensure that even the least trained person amasses savings for an emergency.

Retirement Savings

It isn’t too early to start saving for retirement. The younger you are, the more reason there is to stick to a plan in which you save a part of your revenue each month. Even a small amount of savings you are able to contribute at a young age can help to save you thousands that you could need to invest in later years. Your debt managing plan ought to include some grant of savings towards retirement.

Make a Ladder of Savings

The key to maintaining your savings while decreasing your debt is to set two goals, one for savings and one for debt managing. Your savings goals should ideally include some benchmarks which will permit you to move a portion of your savings up the interest rate ladder which, in essence, locks them in for your future. For instance, when you have surpassed your short-term savings goal, you can begin allotting more of your funds towards your longer term goals, for example Individual Retirement Account (IRA) CDs.

Pay Yourself First

Debt control is crucial, but so are your savings goals. Employing a balanced approach to allotting your surplus funds can help you attain both. The secret is to commit to a dollar value every month and then pay yourself first. An online banking service can automate your savings contributions and expedite your debt payments to help you stay on track towards both your goals.