As a rule, it makes good financial sense to pay back your loans as fast as possible before you start saving - particularly if you have high interest debt, like hire purchase or credit cards. This is because usually you pay more interest on a loan than the interest you earn on savings (after tax).

However, there are also good reasons to do both - pay off debt as fast as possible and start a savings programme at the same time.

Consolidate your debts to save money

Credit cards have higher interest than mortgages - perhaps more than twice as much! Think about consolidating your debts onto a lower interest mortgage.

Pay off loans as fast as you can.

Paying off your mortgage as fast as you can is a great financial decision. Use the Get out of debt calculator to see how a small increase in repayments can have on the term of your loan and the amount of interest you end up paying.

Have an emergency fund

It's common sense to have a cushion for financial emergencies. This is an amount of money you can call on if the unexpected happens. It means you won't have to borrow money or be left financially vulnerable. Decide a reasonable amount (three or four months' income is a good start), balance it with insurance protection against unexpected events, and get saving.

Getting into the "savings habit"

If you would like to get into the "savings habit", you could consider starting a small retirement savings scheme while you are still paying off a loan (such as your mortgage).

You'll get into the habit of saving, and start to build a small nest egg. You'll also start to build your knowledge of savings and investment options, so that you're better prepared when you want to start serious saving.

Always check out your employer superannuation scheme

Some employers have subsidised superannuation schemes - this means that for every savings contribution you make, your employer also contributes some money.
If your employer has a scheme like this, you may be better off using this, than repaying your mortgage or other loan faster.

Check out the 'At work' section for more details.

Warning - the dangers of renewing or extending debt

While it might be good financial logic to pay off your mortgage before you start serious saving, some people fall into the mortgage trap and never start saving. Beware the following pitfalls:

You take your time about paying off the mortgage and don't leave yourself enough years to save before retirement. Remember - you probably need at least 10 - 20 years to save enough for your retirement.
You pay off the mortgage and then decided to buy a more expensive home - which results in a new mortgage and still no savings.
You're tempted to take on a higher mortgage than you could afford if you took into account your savings goals. Your new higher mortgage repayments reduce your ability to save.

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