Debt problems can often start in times of emergency when there is no money to fall back on. These emergencies do not necessarily have to be life and death. If the car breaks down meaning that you cannot get to work the problem has to be fixed fast.

The issue comes where cash is required quickly to resolve an emergency but there are no savings to fall back on. Where this is the case the natural reaction is to borrow the required funds from credit cards or your overdraft. When the balance of the credit card or other debt payments become due and cannot be paid in full household debt begins to increase.

The way to avoid falling into debt when emergencies happen is to have some savings to fall back on. However saving is not easy. It needs careful planning otherwise any good intentions to keep money back each month will come to nothing.

Plan to save and make it a habit

Before you can save, you must have a good understanding of your budget. The best way to do this is to get a piece of paper or site down at the computer and first list your income.

Include all the money you receive after tax from your wages, child benefit and other benefits and income. Next, list all of your essential living expenditures from your mortgage and rent to food, electricity, gas and travel.

Once you have your total income and expenditures, subtract the expenses from the income to see what you have left. This outstanding figure is known as disposable income. You disposable income can be used for paying unsecured debt and or saving.

If you want to save, you have to plan to do this. It is no good saying to yourself, that you will save £50 at the end of the money. By the end of the month, the money just will not be there.

The very best way to save is to transfer your savings money into a savings account at the beginning of the month. In this way, it will be out of sight and mind and not at risk of being spent.

Should I pay off debt first?

Many financial commentators will urge you to pay off any outstanding debts such as your overdraft or credit cards before you save. However, this is not always the best advice. Your first priority should be to have that 1 month’s salary tucked away which you can use when an emergency comes along.

Once you have your emergency fund saved, then yes, the next priority is to pay off outstanding debts. Particularly credit and store cards which will very often be charging you high rates of interest.

Once all of your unsecured debts are paid, you should not break the habit of saving. Carry on saving. An ideal target is to have three month’s salary in savings to fall back on. In future be able to buy the things you want in cash rather than using credit. Not paying interest will make the things you buy far cheaper.

Unfortunately, emergencies which require cash will always happen. It is important that we plan for them rather than burying our heads in the sand and hoping that they will not occur. Saving will mean that you can create a cash buffer to use when these emergencies come along rather than relying on expensive credit and risking falling into a spiral of debt.