It can seem like an impossible feat—saving money while you pay off your debt. While we know it takes some careful planning, it’s possible to do both. But first, you’ll want to make sure you take a look at your budget and have a good grasp of where your money is going, and how much you need each month to cover all your expenses.
While paying down debt is important, some financial experts say that having an emergency fund first is more important, especially with a high-interest savings account so that you accrue money as you save. But it’s really about balance, and if you have significant debt, building a savings while repaying lenders can work as a long-term strategy.
How can you pay down your debt and save money?
All roads start with a budget
When creating your budget, make sure to eliminate any unnecessary spending. This could be extra entertainment, streaming services, and eating out. Leisure time is important but look for ways you can still find enjoyment without breaking the bank. By creating a budget, you now know how much you bring in each month, where it’s going, and how much is left over to put toward a savings account.
Start to save
It’s always a good idea to have at least several months’ worth of your salary saved up. If you’re just starting, you can focus on creating an emergency fund for a couple of months while still making the minimum payment on your debts, and then refocus funds to both after you have a small cushion.
Pick your method
There are different methods of repayment, with two of the most popular being the snowball method and the avalanche method. But before you choose how you’re going to pay back your debt, you’ll want to decide how much you’re going to allocate to each.
The 50/30/20 rule follows the logic that 50% goes to your monthly expenses, 30% goes toward recreation and wants, and 20% goes to debt and savings. When you’ve allocated the amount that’s going to debt each month and how much is going into savings, you can pick your method of repayment and get started.
Speak to a credit counselor
If you feel overwhelmed, you may want to speak with a credit counselor. A counselor can help guide you as you create a budget and enroll you in a debt management plan, which can help you pay your loans off in three to five years. This will help you gain better control of your finances so you can get to saving for your future.
By budgeting, saving, and paying down your debt, you’ll build healthy spending habits that will help you build a better financial system.