Do you have debt that you are trying to pay off, but also want to increase your savings? It can be difficult to do both, but it’s definitely possible. Here are some tips to help you build up your savings while paying off debt.
First and foremost, set a budget. (If you want something a little more robust than your typical Excel spreadsheet, be sure to check out one of my favorites You Need a Budget, and when clicking the link, we’ll both get a free month!) This is key to making sure you are able to pay off your debt and also save money. Create a budget that includes all of your expenses, such as rent, food, transportation, utilities, etc. Once you have your budget in place, decide how much you can contribute to your debt repayment and savings each month. Make sure to leave some cushion in your budget so you don’t overspend and end up with more debt.
Next, consider using a Debt Management Plan (DMP). A DMP is a great way to help you organize your debts and make a payment plan that fits your budget. A DMP can help you consolidate your debts into one monthly payment, which can make it easier to manage your finances. It can also reduce the amount of interest you pay, since you will be paying a lower overall debt amount.
In addition, look for ways to save money. This could include things like cutting out unnecessary expenses, bringing your lunch to work instead of eating out, and carpooling when possible. You can also look for ways to earn extra money, such as taking on a second job or selling items you no longer need. The money you save can then be put towards your debt repayment and savings goals.
Finally, focus on paying off your highest interest debt first. This will help you save money in the long run, since you will be paying less interest. Once you have paid off your most expensive debt, you can use the money you were using to pay it off to pay down the next debt and so on. Others may argue for the debt snowball method, which has you list your debts smallest to largest first, giving you the feeling of quick wins.
By following these tips, you can not only pay off your debt, but also build up your savings. Remember to be patient and stay focused on your goals. With a little discipline and careful budgeting, you will be able to reach both of your financial goals.