It’s always a good idea to prioritize your finances and have a budget. The same is equally important when you’re paying off debt. Some folks may wonder if they can have savings while carrying a credit card debt or loan. If you have little or no savings while paying debt, is it a wise idea to continue or start setting up a new savings account?
The answer is yes. Saving money while paying off debt can make a positive impact on your finances. You can consult a financial expert to help you on this matter, or you can follow these tips below to have some insights on how to save money while having debt.
Set a Budget
You can follow several ways on how to set an accurate budget. Here are some of them:
- Determine how much income you receive each month. It’s also crucial to determine the monthly outlay by calculating every expense. Take into account how much you spend on groceries, transportation, gas, laundry, electricity, water bills, etc.
- Compare the income and monthly outlay. If there is any excess money after all the expenses are paid, you can put that into your debt payment and savings.
- Use tools like Telco that can help you make an accurate budget. You can go the traditional way of budgeting by recording your monthly income and expenses in a notebook. You can also use Office Online to organize your budget. Another online tool is Mint which is useful in tracking your household expenses through your laptop or smartphone.
Have an Emergency Fund
Set a savings account that can be used for emergency purposes, such as medical expenses, car repairs, etc. You can put at least $1,000 or more into it so that you don’t have to swipe your credit card whenever an emergency occurs.
Decide Where to Put Your Savings
You need to consider the cost of having unsecured debt before you put all surplus cash into savings. For example, a credit card has an interest rate of around 15%, while the interest rate of a savings account nowadays is about 1%. In other words, paying off credit card debt while having bank savings will cost you 14% of your monthly income.
Although it’s a pretty significant cost, it doesn’t mean that you won’t have to save at all. But the fact is that the “savings only” strategy can chip off a no-small part of your money. It’s a very important consideration when deciding whether you must save while paying off debt.
It’s wise to build an emergency fund while paying your debt. After establishing your initial emergency fund, you can now bump up the amount of your debt payment. Then, once you have paid off your debt, it’s time to increase the amount you put into your savings. Choose a loan with an affordable rate to pay your loan quickly. Check Crediteck’s website for that purpose.
More Ideas to Save Money While Paying Off Debt
It’s crucial to be wise with your financial decisions, especially if your goal is to save money while paying down credit card debt or a loan.
- For large expenses like house renovation or a car purchase, it’s wise to plan and save. You can avail of an advantageous interest rate if you have enough money to make a larger down payment for your purchase.
- Take advantage of employer-matching of your 401(k) plan. This means that your employer may contribute a certain amount to your retirement savings account based on your yearly contribution amount. In this way, you can build your savings quickly.
- For emergency purposes, it’s smart to keep a credit card or two credit cards. Pick those with the most advantageous rates of interest. Discipline yourself to pay your monthly expenses with cash.
- If you have useless credit cards, call the issuers of those cards and tell them you want to cancel your cards. By doing this, your credit score will get a boost.
- Learn how to scale down your expenses to ensure that you have some money to put into your savings. Instead of dining out, you can save money if you cook your food and dine at home. You can also trim down your entertainment expenses until you have paid your debt.
Now you know the various strategies on how to save money while paying off debt. While this may not be for all, saving while carrying credit card debt or loan can make a positive impact on your finances. Just make sure that you know what you’re doing, and whether you can afford to do it because this approach will cost you money.