Putting off starting a savings program until you pay off your debts is one of the worst financial moves that you can make. Waiting until your debts are paid off to start saving is a good way to ensure that you’ll never start saving and will always be in debt.

The truth is that most of us will always have some debts, whether it’s credit cards, a mortgage, car loans, or student loans. If you make debt an excuse not to save, then you’ll always have an excuse not to save. You’ll never get into the habit of saving.

Not having a savings can put you deeper into debt because, without one, your only recourse for emergency finance will be credit cards or some other sort of loan. People without a savings often end up running high credit card balances because they have no other way of covering emergency expenses.

You will always have emergency and other unforeseen expenses. A savings can give a family the cash it needs to cover those expenses without having to pile up additional debt.

Building up a savings is the first and most important step on the road to financial freedom. The second step is to pay off your debts. Fortunately, it is fairly easy to save and pay off your debts at the same time. Implement both your savings and your debt-elimination program now.

Saving and Paying off Your Debts

There are several methods of combining savings and debt elimination. The best of these is the cash snowball, or cash reserve plan.

The cash snowball works like this: sit down and figure out the amount of money you will need in your savings to cover foreseeable emergencies. Then concentrate on building up to that amount. Pay the minimum balance on credit cards, pinch pennies, and live frugally, and then put as much into the savings as you can from each paycheck.

New book reveals how to keep this “gangster” economy from murdering your money…

Then, once the savings has reached the level you want, you can start paying off your debts. Stop making savings payments at that point and use that extra money to pay off your debts.

Here are some savings tips that can help you achieve this goal:

• Pay yourself first. Put the money into your savings before you pay your bills.
• Put any extra or windfall money, such as bonuses, tips, proceeds from eBay sales, etc., into the savings. Don’t use it to pay debts or cover everyday expenses. That way you will not get used to living beyond your normal income.
• Take advantage of automatic savings plans, particularly on your salary. If you get your paycheck by automatic deposit, you can usually set it to put a percentage of your income into a savings account automatically.
• Always keep your savings and checking accounts separate. If you have one of those arrangements where the bank can raid your savings to cover shortfalls in your checking account, shut it down. It is very easy for a bounced check or an identity thief to clean out your checking. If your savings is attached to it, they’ll get that too and leave you without money.
• Keep your savings and checking accounts in different banks. Even though all banks are FDIC insured, it is a good idea to deal with more than one financial institution. One advantage to using different banks is that it’ll be harder to take money out of your savings account.
• Make it hard to take money out of your savings account or CD. You should have a debit card on your savings, but you should never carry it with you. Instead, keep the debit card in a drawer or a safe at your home and only use it in a real emergency. Having the debit card available but not in your pocket gives you a good alternative to credit cards in an emergency.

How to Implement a Debt Repayment Plan

Once you’ve created the savings, you can implement a debt repayment plan. The best piece of advice for debt repayment is to be flexible. Be willing to change the plan, and don’t get discouraged if you can’t meet your goals immediately. The best way to succeed in paying off your debts is to have a debt repayment strategy. Here are a few good debt repayment strategies:

• High interest elimination. It can make sense to pay the minimum balance on lower interest credit cards or loans and concentrate on getting rid of the higher interest ones first. Keeping a balance on high-interest credit cards or loans can cost you a fortune. Simply go through your credit cards and loans, pick the ones with the highest interest rates, and pay them off first, even if they have smaller balances. If you have two credit cards, one that charges 12 percent interest and one that charges 19 percent interest, it would make sense to pay the card with the 19 percent interest off first.
• One at a time. A good way to get started on debt elimination is to pick one debt and concentrate on paying it off first. This can have important psychological benefits because it can prove that you can do it and successfully eliminate your debts. Try paying the debt that bothers or annoys you most off first.
• Doubling. If you want to work on eliminating all your debts at once, try the doubling strategy. Simply pay double the minimum payment on all of your debts. This can work well for getting rid of mortgage or car loan balances. However, it may not work as well for credit cards because many of them are designed with a low minimum payment to make it harder to pay them off.
• Pay more than the minimum. Even if you can’t pay double the minimum, pay more than the minimum payment. For example: if you have a $330-a-month credit card bill, try paying $400 a month.

Staying Out of Debt

Once you pay off your debts, don’t spend that extra cash. Instead, start putting it in your savings. If you eliminate that $200-a-month credit card bill, put the extra $200 in your savings. That will give you more savings, and it will help you live within your means because you will not have that money where you can spend it.

Any extra money you get through debt elimination must go into your savings or investments. The best way to avoid debt in the future is to save up large amounts of cash now.