Should you still save money when you’re hell-bent on getting out of debt? With this debt collection company, you will have all of your worries taken care of in no time.
It’s an age-old question and people have varying viewpoints on the answer. Some people believe in an all or nothing approach when it comes to paying down debt. With that mindset, it’s hard to focus on anything other than throwing any and all of your extra money toward your payments.
While you can definitely pay down your debt fast with an all or nothing approach, if you’re faced with unexpected expenses or if your circumstances change, you may not have any savings to fall back on.
I used to take an all or nothing approach to paying off my debt. Then, I became unhappy with my job, and I got married as well. I then realized that it’s important to make saving a priority as well, even when you’re paying down debt.
Sometimes it may be hard to maintain both priorities if you have a smaller budget, but here are 6 things you can do to prioritize saving when you’re in debt.
1. Make Saving Automatic
One of the best ways to prioritize saving when you’re in debt is to make it automatic. You can easily set up fixed automatic transfers from your checking account to your savings account weekly or monthly. Try to set up automatic withdrawals right around the time you get paid so the money will be out of sight, out of mind.
You can also use certain apps to help you save money. Apps like Digit, Qapital, Acorns, and TipYourself all help you save spare change automatically.
2. Split Your Goals Down the Middle
If you want to save money while paying down your debt, you’ll have to split up your money to meet these two goals.
One way to do it is to split your contributions right down the middle. For example, if you have $600 extra each month to put toward debt, you could commit to just putting $300 toward debt and then deposit the remaining $300 into your savings account.
Sure, it will take you longer to pay down your debt with this approach, but you’ll also have the opportunity to build up your emergency fund which can help you avoid getting into any additional debt.
As time goes on you can always change the way you allocate your money and put 70% of your extra funds toward debt and 30% toward savings.
3. Up Your Retirement Contributions
If you have an employer-sponsored 401(k) plan, contributing to it can be a great way to save some money for retirement regardless of whether you currently have debt. If your employer offers to match your contributions, it would be wise to increase them so you can get the match since it’s basically like receiving free money.
These contributions will most likely be automatic and occur before you even see your paycheck so it’s a great way to prioritize saving even when you’re deep into your debt repayment journey.Having savings gives you more choices, even if you still have debt to pay off. Click To Tweet
4. Drop Any Expensive Habits
When you want to pay off your debt, one of your first steps should be to cut or reduce some of your expenses to free up more money that can be put toward debt. If you want to prioritize saving during this time as well, you can also try to get rid of any expensive habits or costs you might have overlooked before.
Maybe you can stop smoking and save a noticeable amount of money per week. Maybe you can get rid of your cable by switching to Hulu, cancel your gym membership, or start dining out less.
The more expenses you’re able to get rid of, the more likely you’ll have enough money to save and pay off debt.
5. Increase Your Income
Sometimes, you just need to increase your income if you want to meet multiple financial goals – especially if you want to prioritize saving. You can ask your employer for a raise, work some overtime hours, or pick up a side hustle to make extra money.
As a busy mom, I love flexible side hustles to help me earn extra income. Determine how much you wish to save and how much you need to put toward debt each month and this can help you determine how much extra money you need to make.
If you are looking for something flexible with moderate earning potential, try taking surveys online with Survey Junkie, walking dogs, or babysitting. If you’re looking to earn even more money on the side, consider driving with Uber, freelancing, or virtual assistance work.
6. Set Up Small Targeted Savings Accounts
Even if you don’t have a lot of money to set aside for saving, you can set up small targeted savings accounts based on your smaller goals. I use CapitalOne 360 to do this and it’s an online bank with a .75% interest rate.
What I love about CapitalOne360 is that you can open up to 25 savings accounts for free and there are no minimum balance requirements or monthly maintenance people.
Since I already fully funded my emergency fund, right now I’m setting aside $25/month for my car maintenance, $40/month for my new car fund, and $25/month for my cat’s emergency fund plus about $50/month for Christmas.
The bulk of my extra money (about $1,100) is going directly toward paying off the remainder of my debt. Even though I’m only saving small amounts each month, my savings account balances are increasing and I’ll have a nice cash cushion to fall back on when I need to spend extra money.
Have you ever wanted to prioritize saving while paying off debt? How did you do it?