Tips on how to pay off debt and save at the same time (2024)
New York Life |September 19, 2023
Household debt in the U.S. continues to rise, led by an increase in credit card balances.1 It can be challenging to pay off debt and save at the same time, but it is possible. Here are some tips to help you get started:
This is the first step to understanding your income and expenses, and where your money is going. Once you have a budget, you can start to identify areas where you can cut back.
2. Prioritize your debts.
Not all debts are created equal. Some debts, such as credit cards, have high interest rates, while others, such as student loans, may have lower interest rates. Make a list of all of your debts, including the interest rate and minimum payment for each. Then, prioritize your debts, paying off the highest interest debts first.
3. Make more than the minimum payment on your debts.
If you can only make the minimum payment on your debts, it will take you longer to pay them off and you'll end up paying more in interest. Try to make more than the minimum payment on your debts each month, even if it's just a little bit extra.
4. Consider debt consolidation.
If you have multiple debts with high interest rates, you may want to consider debt consolidation. This involves taking out a new loan to pay off all of your existing debts. If you can get a lower interest rate on the new loan, you can save money on interest and make it easier to manage your monthly payments.
5. Set savings goals.
Once you have a budget and have prioritized your debts, it's time to set savings goals. How much money do you want to save each month? What are you saving for? Having specific savings goals will help you stay motivated.
6. Automate your savings.
One of the best ways to save moneyis to automate your savings. This means setting up a recurring transfer from your checking account to your savings account each month. Thisway, you'll save money without even having to think about it.
7. Cut back on unnecessary expenses.
Take a close look at your budget and see where you can cut back on unnecessary expenses. This could mean eating out less, canceling unused subscriptions, or shopping around for lower insurance rates.
While paying down high-interest debt will help you reduce the amount of interest you owe, not having an emergency fund can put you deeper in the red when you have to cover an unexpected expense. “Regardless of [your] debt amount, it's critical that you have money set aside for a rainy day,” Griffin said.
While paying down high-interest debt will help you reduce the amount of interest you owe, not having an emergency fund can put you deeper in the red when you have to cover an unexpected expense. “Regardless of [your] debt amount, it's critical that you have money set aside for a rainy day,” Griffin said.
It's a good idea to pay off your debts before your credit information is shared each month with the three nationwide consumer reporting agencies — Equifax, TransUnion and Experian. This practice helps keep your credit utilization rate low.
Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
$5,000 in credit card debt can be quite costly in the long run. That's especially the case if you only make minimum payments each month. However, you don't have to accept decades of credit card debt. There are a few things you can do to pay your debt off faster - potentially saving thousands of dollars in the process.
Defaulted debt can crush your credit score and hurt your chances of borrowing money in the future, whether it's applying for a mortgage, car loan or credit card. If you have the means to pay off old debt, it will help your overall credit — both your score and your report.
Whether you're paying off a loan with a lump sum or you plan to chip away at it with larger payments, paying off your loan faster will likely mean tightening up your budget. Consider where you'll get the money to pay off your debt — is it being diverted from your retirement savings plan?
Millionaires usually avoid the following:High-interest debt: Millionaires typically steer clear of high-interest consumer debt, like credit card debt, that offers no return or tax benefits. Neglect diversification: They don't put all their eggs in one basket but diversify investments to mitigate risks.
However, paying off your debt quickly should be a top priority when times get hard. The more debt you pay off, the more breathing room you can give yourself in your budget and the more you can build up your emergency fund.
Introduction: My name is Nicola Considine CPA, I am a determined, witty, powerful, brainy, open, smiling, proud person who loves writing and wants to share my knowledge and understanding with you.
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