The growing global economic crisis has made our financial planning go for a toss. The main question in front of us today is what should be our savings? Should we save first or pay off debts first? To find the answers to these questions lets analyze the situation logically:-

• Suppose you have a rolling credit card debt of $1000 and you have the same amount as surplus. So what should be done whether to put the money in your savings account which will provide you with just 4% return after a year which amounts to 40 dollars? Or you can use this money for faster paying off your credit card debt which amounts to almost 190-200 dollars as usually credit card companies charge you 19-20% annually. In this scenario the faster paying of debt resulted in a saving of 150 dollars, so the choice is easier to make. Therefore the first thumb rule to remember is that you should always concentrate on quicker payments of high interest loans on debts which will ultimately lead to a substantial annual savings

• Another simple arithmetic, which will help you in making a beneficial choice: The saving which you place in bank is used by bank to provide loans to people at higher rates of interest. Simple fact the rate of interest you earn on savings is was below the rate you pay while borrowing money. Hence a wise decision would be to pay for the borrowed amount rather then putting the money in your savings account

There can be an exception to the above mentioned scenarios. The idle situation for you will be to pay off higher interest debt faster but if your savings can generate more interest or if you have taken a loan which is virtually interest free then investing in savings would be a better option. After paying the high interest debts your main focus should be on:

• Saving schemes that will provide you with tax saving benefits. Also don’t be in a hurry to repay the mortgage loans or study loans as they help you in getting tax exemptions which adds to your savings kitty.

• Workplace savings or provident fund. This is an excellent saving option as the employer contributes the same saving amount as saved by the employee which helps in doubling of your resources.

• You should save at least two to three months of your salary as emergency fund. This money could be used to pay off credit cards debt but it is always advisable to save for your rainy days.

• Stop using your credit card for unnecessary purchases. Some of us are compulsive shoppers and what better way then splurging other than plastic money But for long term financial security, it is advisable to hold the reigns of your spending horses and use paper money for purchases which helps you keep a track of your spending

• Another option could be borrowing money from friends and family for faster repayments of high interest debts

By proper identification of good and bad debt, it’s a good savings practice to pay off your high interest debts first before starting on your savings fund.

Andy Eaton is £21,040.57 in debt, read his personal blog and discover his step-by-step plan for why and how he is eliminating his debt. His journey to debt free is going to happen quickly for him as he is using a plan. Follow his amazing story at http://www.sick2debt.com