[Ed note: Money Matters is a weekly column that dissects financial matters in a way that folks who aren't finance experts can understand. If have a money question you want answered by our resident expert, Shay Olivarria, please email Shay@squarerootz.net.]

Money Management in 1 Minute : Savings

Savings falls into two general categories: short term (in the next five years) and long term (longer than ten years). We will all have emergencies come up, having just $500 available for emergencies may be the difference between paying bills and going into debt. Short term money needs to be available at a moment’s notice to pay for car repairs, tickets, and other emergencies. Long term money can be put into more risky and less liquid accounts because you won’t need the money for a long while.

Savings vehicles also fall into a few broad categories:

Short-Term Appropriate

• Savings Account
• Money Market Account

Long-Term Appropriate

• Savings Bonds
• Mutual Fund Account
• Retirement Account

Reader Question: What is a strategic way to tackle debt? For example if you’re late on your Sallie Mae payments and credit card bills which one should you tackle first? Can you really pay what you can afford when it comes to having an account in collections and what is the best way to negotiate that?

Getting into debt took time and getting out of debt will take time.

Student loans and credit cards are serious business. Getting back on track with both are equally important. Which one to begin sending your money to depends on how late each account is, what the interest rate is, and how flexible each company is willing to be with repayment. There is no one-answer-fits-all solution.

Government and private student loans will usually try to work with you by offering deferments and forbearances to help you manage your budget before you are late on payments. Once you are already late, you might be in a different boat. Contact your student loan provider and be honest about your situation. They will likely ask you to provide evidence of your inability to pay such as pay stubs. They may be able to reduce your monthly loan payments or defer them altogether.

Having a credit account in collections is a horse of a different color. Sometimes when you are late on a bill, the company may forward your account to a collection agency. Usually collection agencies will work out a payment plan that will fit into your budget, however be careful: interest is usually accruing while you pay off the debt. The collection agency may tell you that you can pay a fraction of what you owe in order to pay off the debt; don’t believe it until you see it in writing. There have been many cases of collection companies saying one thing and doing another. If you want to pay off the debt, contact the original company and work out a payment plan.

If the account is so late that it has been wiped off the books of the original company, you will have to deal with the collection company. Here are a few helpful tips about any business transaction:

• Make sure to get everything in writing.
• Request that the collection company provide you a letter once debt is paid off.
• Keep copies of all correspondence for at least 7 years.
• Mail all payments with a copy of the original agreement.
• Once debt is paid off, check all 3 credit reporting agencies (Equifax, Transunion, Experian) to make sure that the account says “paid”.

In short, deciding whether to pay off student loans or credit cards is a decision that will be based on many factors. If at all possible, I would suggest one of two strategies. The first is to pay a little on each to get back on track and the other is to figure out which has the highest interest rate and put as much money as you can toward that debt until it’s paid off. Remember that as long as you are late on any debt payments, your credit score is being hurt. Be honest with the companies, be honest with yourself, and be patient. Create a plan to pay off debt and stick to it.