Paying Off Debt and Saving at the Same Time: It’s Possible
Many people buckle under the full weight of debt without a plan or hope to move forward. They are not making monthly payments. They are unaware of the exact sum of debts. The unknown hangs over them and feels insurmountable, while the fear of talking to creditors eager to take hard-earned money lurks in the background.
The idea of also having a savings account seems impossible under this kind of duress.
Even though you may feel stuck, you are capable of making a plan and facing financial commitments. Demystify the reality of what you owe and arm yourself for the future by following these payment and savings guidelines.
Manage the Priority
After paying major bills, like rent, utilities and car insurance, subtract the next portion of your paycheck for minimum payments on all owed debts — student loans, credit cards and others.
Try and negotiate a plan with debtors that matches your income capabilities. Debtors should be willing to work with you so that you are at least working toward repayment, making small dents in the overall amount owed. This is a step forward because it means you are communicating with debtors rather than dodging phone calls. Keep debtors updated with address and phone number changes to avoid missing notices and help stay in contact.
Handling debt requires consistency. Avoid costly habits like missing payments and making late payments, which can accrue fees, raise your interest rate and leave blemishes on your credit card report.
Make an Emergency Fund
Take the initiative to bring in some extra money immediately. You want to create an emergency fund to cushion any unexpected expenses that would interrupt your debt repayment or force you to rely on credit. A good goal for the emergency fund is $1,000.
Because you want to pay off your debt at the same time, earn money for this fund by working an extra shift on the weekends, getting a part-time job or re-evaluating your personal belongings and finding things to sell. Increasing your earnings temporarily will allow you to reach this achievable goal without putting a strain on your overall budget.
Make a Lifestyle Change
Successfully addressing savings and debt often requires making a major change.
People have difficulty pursuing both goals because they are limited by their income and do not have the extra funds to manage the goals simultaneously. Reduce the amount you spend on a regular basis to solve this dilemma.
Start by recording all your expenses for a month. Learn exactly where your money is going to find a place where you can eliminate a significant amount for a long-term savings account. Unlike the emergency fund, this money will ideally remain untouched for years to come.
The kind of lifestyle changes that free you of expenses include packing brown bag lunches for work, ending your gym membership, downgrading your phone plan, going without cable or whatever else is consistently eating away at your paycheck. Find alternatives to use your time and save money like running outside or watching TV online. It may take extra effort, but the nest egg you are building will be worth it.
Enacting these payment and savings guidelines is a big responsibility, but piece by piece you can create financial security for today and tomorrow.
Alanna Ritchie is a content writer for Debt.org, where she writes about personal finance and little smart ways to spend (and save) money. Alanna has an English degree from Rollins College.