At any given time, there are usually a few financial goals commanding your attention. The top concern for many people is getting rid of their debt.
Debt can be a big drag to your financial future. Having it around can make it feel impossible to save money towards your other goals.
Many people are having to deal with debt in some form.
So the question comes. How do you save money while also paying off debt?
When you have debt, it consumes a lot of your attention and mental bandwidth. It can be easy to push aside the notion of saving money. Saying things like “I’ll do it once I pay off my debt”.
However, there is a case for saving money while also paying off debt. Developing a habit of saving money can be powerful.
Saving money helps you invest in yourself. It gives you options. It keeps you from going further into debt.
It’s the perfect strategy towards accelerating your financial goals and kicking debt to the curb. Here’s how to save money while also paying off debt.
Figure Out A Debt Repayment Plan
I didn’t know a lot about the different debt repayment methods when I started paying off my student loan debt. Getting rid of my debt consisted of just logging into my account and making a monthly payment.
Usually, I would put a little more than what the minimum payment was. I wasn’t following any particular debt repayment plan.
Not to long after, I was introduced to the debt snowball and debt avalanche repayment methods. The debt snowball method involved paying off the lowest debt balances first. The debt avalanche method involved paying off the highest interest debts first.
The debt snowball method is popular and touted by many personal finance experts. Since you’re paying off the lowest balances first, it allows you to celebrate quick wins.
I knew I wanted to knock out my debt while minimizing the amount of interest I paid, so I ended up choosing the debt avalanche method.
Choose the one that works best for you. Having a debt repayment plan can keep you focused and motivated.
Track Your Spending
This is an important step to improving your finances in any capacity. When you track your spending, you’re able to get a clear picture of where your money goes.
I put off tracking my spending for the longest time. I used to think it wasn’t important because I wasn’t making a lot of money. Color me shocked when I tracked my spending for the first time and realized the various money leaks I had in my monthly spending.
If hitting your other financial goals, besides your debt, is a priority, then tracking your spending is important. You can get started by using a free tool like Personal Capital.
Another good option for tracking your spending is Tiller which pulls all your data into a spreadsheet in a uniform format. It is also what is used for our free automated budget spreadsheet.
Set Your Goals
Go from saying things like “it would be nice to take a vacation” to “I’m going to save $100 a month into a dedicated savings account for a vacation“.
Your goal doesn’t have to be a vacation. It can be any number of things saving for a house down payment, for retirement, or building a small emergency fund.
Having a clear goal makes succumbing to temptation less likely. You’re better able to resist the urge to buy those half priced clothes at the mall when you have a goal to hit.
Automate Your Savings
The best way to make sure you don’t go into more debt is to have savings. Having saving comes from developing a consistent savings habit.
Automating your finances gives you peace of mind. You know you’re saving money but you don’t have to worry about manually going in and doing it.
Set up a regular, recurring transfer from your checking account to a dedicated savings account. It doesn’t have to be a lot of money. The importance is developing a habit of paying yourself first.
When you open a free Capital One 360 online savings account, you can set up regular, recurring transfers. You can even nickname the savings account to something like “vacation fund” or “wedding fund”.
Nicknaming your accounts can be great to help you visualize your savings goal.
Increase Your Savings Rate
One of the best things you can do to save money while also paying off debt is to increase your savings rate. Easier said than done, right?
Increasing your savings rate is best done through finding ways to make extra money. While cutting expenses can be great, I’m pretty sure you have already done most of the legwork for it. Now it’s time to focus your efforts on increasing your income.
Start small and look into ways you can make your first $100 or $500 in extra income. From there, think about ways you can scale your extra income efforts.
Blogging has been one of the best side hustles I’ve had. I started a blog as a way to track my debt payoff efforts and it slowly morphed into something more. There are several income streams you can create from a blog.
As I grew my blog, I started to let go of short-term side hustles I had been doing. I used my blogging income to help build my emergency fund and save for one of the things I love most: travel.
Getting a promotion or pay raise at work can be great, but it isn’t always a possibility. A side hustle is key to increasing your saving rate.
Final Word
It can be tricky figuring out how to strike a balance between paying off debt and saving money.
Developing a savings habit is important while paying off debt. It can cover unexpected expenses that pop up like car repairs, work-related stuff, or medical costs.
A stocked savings account reduces financial stress and gives you options. Saving money while paying off debt can feel hard at first, but by doing a few things, you could kickstart your savings habit.
What strategies have you used to save while paying down debt? Or what strategy are you looking forward to trying?
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I’m currently in process of looking to save more. It’s a slight struggle because I want to eliminate my debt as quick as possible, but at the same time, I need to have even more savings. The good thing is, that I’m making more with the side hustles.
I’m constantly looking for ways to save more – this year, I intend to eat out less and have my wife cut my hair – but I feel as if I’m quickly approaching the most I can save. It can be real tricky to find another dollar to cut!
track spending and set goals are very important always not only when you are paying off debt