Balancing your financial obligations is challenging in a world where everything’s keyed to marketing the latest electronic gadgets, technology upgrades and trendy fashions. Reducing debt is one of the soundest financial strategies because continuing to pay interest doesn’t generate any benefits for you and your family. Saving money for an emergency fund also ranks as one of the wisest financial decisions you can make. What’s the best way to balance these two goals given that you have a limited monthly income? Should I build a savings account while reducing debt?
High Personal Debt Compromises Your Future
Unfortunately, debt ranks as the biggest threat to your financial security, so paying it down is your most critical step. The benefits of reducing your debt are enormous. Your debt-to-income ratio will fall, which could improve your credit score and qualify you for low-interest loans. You might qualify for a mortgage to buy a home, which would help you begin building equity instead of spending most of your monthly income on never-ending rent.
Student debt is also a big concern, and the fact is that nothing–including bankruptcy–gets rid of student debt. The government will attach your home, bank accounts and other property if you don’t begin paying off your student loans.
Create a Budget and Stick to It
It’s important to track all your expenses if you want to get out from under crushing debt. The best strategy is to separate your debts into three categories: fixed expenses, variable payments and optional expenditures. 
You’ve probably guessed that optional expenses are the area where you need to cut back to make higher payments against your debts and contribute to any savings plans you might be considering. The first step is knowing your financial strengths and weaknesses and planning accordingly.
There are many online resources for creating a budget. The important thing is to understand where your money is going and take steps to reduce your spending. Balancing your obligations to pay down debt and create an emergency savings fund is the best strategy.
You can begin by adding up your net family income after taxes. The three categories include the following expenses:
- Fixed expenses: Rent, minimum debt payments, gas, mortgage payments, insurance costs, etc.
- Variable expenses: Utilities, groceries, repairs, car expenses, etc.
- Optional expenses: Vacations, clothes, gym memberships, subscription services, etc.
Strategies for Reducing Debt
Some experts recommend saving at least two months of income as a safety net. Some recommend saving about $1,000 for emergencies. Regardless of your decision, you should pay the minimum on your debt until you reach your short-term savings goal and then begin paying down debt at a faster rate.
Once you’ve built up enough savings for emergencies, you should concentrate on paying off debts, an approach that most financial experts recommend.  The interest charges you pay on loans are almost always higher than any interest you earn on savings.
Strategies for Building a Savings Account While Reducing Debt
An article in Forbes Magazine reported that people without an emergency fund were “six times more likely” to apply for a loan using their retirement accounts as collateral.  That isn’t practical for small amounts, which is why an emergency fund is needed for small, unexpected expenses. If you need a large amount of cash for a major emergency, tapping into your retirement accounts might be your only choice regardless of your emergency savings.
It’s really hard to fund savings accounts and service debt at the same time. Unless you are saving toward an investment that will generate more income, it makes sense to establish a minimal emergency fund and pay off your debts as quickly as possible. You’ll enjoy the benefits of an increasingly lower debt-to-income ratio and, ultimately, realize more cash over the long-term outlook.
You can reasonably save money by increasing your income, reducing optional expenses and/or taking advantage of matching employer contributions to IRAs, HSAs and 401(k)s. In an emergency, you can access your retirement accounts. In the meantime, you can be reducing your monthly expenses steadily by paying down debts.
Getting Sound Financial Advice
Balancing all the competing demands for money makes it hard for anyone to know the right approach in all situations. Your circumstances might be different than other people’s situations, and the previous advice might not be your best strategy. When you need guidance about debts and savings, our team of financial experts at Christian Debt Counselors can help you make the right decision, so contact us today for a financial consultation.
 Daveramsey.com: Pay Off Debt Before You Save For Retirement
 Businessinsider.com: ASK A FINANCIAL PLANNER: Should I save money or pay off debt?
 Forbes.com: Should You Increase Savings First Or Pay Down Debt?