The economic situation is changing, and inflation is generating a steady rise in our household spending, putting a strain on our budget. This has resulted in a rise in credit card debt since inflation started.
And you are finding it difficult to decide on whether to pay off your credit card debt, student loans, etc. or to build your savings,
The good news is that you can do both of them at the same time. This involves managing and planning your finances. In this post, we will examine the ways to pay off debt and still save money simultaneously
Some techniques to pay off debts and still save money are first determining how much you owe,detemine your debt and savings sharing percentage, automating your savings, choosing a debt payoff strategy to use, and so on
Read on to learn more about how you can pay off debt and still save money at the same time.
Read how to save $7,500 in 6 months.
How Do I Exactly Pay Off Debt And Still Save Money?
Here are some of the strategies to utilize to pay off debts while saving money
Figure Out How Much You Owe
If you want to pay off your debts and still save money, you must first determine how much you owe. List all of your debts, including the interest rate and minimum payment.
The idea is to determine how much debt you have—and how much it costs you. Add them all up to see how much money you’re paying on your debt each month.
Review Your Existing Budget.
The next step is to go back to your budget. Begin by determining your monthly income, then account for your monthly expenses, which include basic expenses, monthly debt payments, and discretionary spending like shopping and leisure.
If your total expenses exceed your income, you must take action to cut back your spending. You can do this by checking your spending patterns over the last few months.
You may find needless spending that can be eliminated, such as subscriptions or memberships that you do not utilize. If you have money left after paying your bills and their expenses, then that is fantastic!
As you have debts to pay off, you will naturally wish to contribute some of them to your debt repayment while some of them will go toward savings.
Read more about the step-by-step guide to start budgeting as a beginner,
Determine Your Debt And Savings-Sharing Ratio.
Once you know what is available after your budget, you need to select how much of your remaining income will go to savings and how much will be directed toward debt reduction.
This is an opportunity to strengthen your saving muscles. Depending on your financial condition, if you have a large debt, you can allocate more to debt and less to savings
For example, if you have $100 left after expenses, you may elect to save 10% and apply the remaining 90% to your debt. In that case, you will save $10 while $90 goes to debt payoff.
10% may not seem like much, but the amount you save is not crucial. What matters is that you learn to save!
Build Your Emergency Funds.
Saving for emergencies is important at this period. Your top priority should be to create an emergency fund. You would not spend money on other goals until you had this in place.
These funds will assist you in times of emergency, such as job loss or illness. You can start with saving $1000 first, which may not be enough, but it is good to start from somewhere.
You need to increase the amount as you progress with your savings goal.
Experts advise that it is important to save not less than 3 to 6 months’ worth of living expenses. If you have inconsistent income or are self-employed, you may wish to save more than 8 months’ worth of your living expenses.
Automate Your Savings
Automating your monthly contributions is the most effective strategy to manage debt repayment and increase your savings. Establishing a direct deposit method for your savings account is very important.
It is advisable to automate the monthly transfers to your savings account before you begin spending. This will ensure you do not use the money for any other expenses.
Developing a savings habit now will help you stay financially stable later on. By the time you’ve finished paying off your debt, your savings habit will be well established. You will also have a bit of a cushion to meet your other financial goals.
Choose A Debt Payback Strategy.
Once your savings are automatic, choose a debt payback plan. Here are some of the debt repayment strategies: you can chase from.
The Avalanche technique (high-interest payback), the debt snowball approach, and the debt consolidation method.
The Avalanche technique
This technique recommends focusing on debts with the highest interest rates first. Begin by putting any excess funds toward the balance with the highest interest rate.
Once that is paid off, move on to the second-highest balance until you have paid off everything.
If you have credit card debt, it is advisable to adopt this strategy to pay off your high-interest credit card loans.
Debt snowball technique
This strategy focuses on paying off your lowest balance first. You will channel more money toward your smallest debt balance.
Once that is paid off, you will proceed to the next lowest account. For people with many debts, the snowball method urges consumers to start by paying off their smaller bills first, regardless of interest rate, and build momentum before moving on to the larger ones.
Debt consolidation method
This technique entails taking out a loan—ideally with a lower interest rate than you’re now paying—and using it to pay off all of your outstanding bills.
You will subsequently have a new balance and monthly payment. You can also use a credit card transfer approach that utilizes a credit card that has an introductory 0% interest rate.
Regardless of which strategy you use, it is crucial to pick a plan and adhere to it. It is critical to get that debt paid off as soon as possible.
Read more about the amazing benefits of investing your money,
Find Ways To Increase Your Income.
As you pay down debts and build your savings, it can be beneficial to bring in more funds. If you are spending more than you are bringing in then more debts will be building up.
In addition to budgeting, taking on a second job, whether it’s a side hustle, changing jobs, or working longer hours, will give you greater flexibility within your household finances.
Find Other Ways Where You Can Cut Spending.
In other to pay off debt and still save money, you need to cut down your spending. Examine your budget and identify areas for savings. Make sure there is no money unnecessary spending and charges.
Examine your bank statement and identify any expenses that you no longer require like subscriptions, gym memberships, and useless warranties,
This extra money is automatically saved with little effort.
Other expenses, such as eating out and entertainment, might be reduced to provide more room for savings and debt reduction.
What Do I Do To Avoid Incurring More Debt?
Here are some things to do to avoid incurring further debt. Fiirst, make sure you pay off your credit card balance each month, automating your savings, and creating an emergency fund.
Use cash windfalls, such as tax returns and work bonuses, to pay down debt and save. and avoid overspending.
Can You Repay Debt And Save At The Same Time?
For many people, the best option is to establish a balance between saving money and paying off debt. You can and should concentrate on both at the same time.
Final Thought
Now you know how to pay off debt and still save money, it is important to know that achieving this requires discipline and determination,
With these strategies above, achieving both while maintaining a reasonable budget is possible. Eliminating debt, regardless of where you are on that journey, can significantly enhance your credit score and make you financially stable.
Watching your money grow can help you stay focused and motivated. Learn more about saving by reading how to save money to achieve your big financial goal,