How To Save Money When You're in Debt
Tackling your debts might require some courage, but it’s an essential step to boosting your financial health and setting the stage for a successful future. And while it can feel a little tempting to throw every extra cent into wiping out debt, it’s important to save money, too. Here’s how to balance these two financial heavyweights and succeed at both.
Look for Easy Savings
Paying off debt might be your top priority right now, but don’t let debt repayment get in the way of saving for the future. “One of the best ways to start saving is with a retirement account, like an IRA or 401(k), because you’ll have savings and, in the case of a 401(k), you get a tax break instantly,” says Abby Eisenkraft, Chartered Retirement Planning Counselor based in New York. “That tax break might increase your refund at tax time, and you can apply that extra money to your debt.
Sign up for a savings plan that takes retirement savings directly from your paycheck, recommends Eisenkraft. You’ll automatically build savings right into your budget, so you’re less likely to tap into your nest egg to cover other costs. And if your employer offers a 401(k) matching program, you’re also saving “free” money.
Build Up an Emergency Fund
Emergency saving is key for staying out of debt for life. If you build up funds to cover unexpected expenses, you won’t have to dip back into credit to cover those costs. Eisenkraft recommends starting with a goal of $50 to $100 dollars a month — an amount that’s small enough to be manageable, but large enough to turn into four-figure savings after one to two years.
The best way to find that money is to track what you spend, which you can do with budgeting software, like Quicken Starter Edition. The software automatically imports and categorizes expenses so you can get an idea of where your money is currently going and which expenditures you can trim to make room for emergency savings.
Stay Motivated as You Reduce Debt
While you might be tempted to tackle your highest-interest debts first — after all, they’re the ones that cost you the most money — wipe out the smallest debts first, advises Eisenkraft. Dubbed the “snowball method,” this strategy involves paying the minimum amounts due on larger bills and aggressively paying down the smallest. Once you’ve paid off the smallest bill, start paying off the next smallest debt, and so on, until all your debts are gone. This method is more psychologically rewarding, since you’ll feel like you’re gaining traction more quickly and you’ll stay motivated to keep paying off debt.
Use Budgeting Software to Help
Budgeting software, like Quicken Starter Edition, helps you pay down and manage your debt. Quicken Starter Edition’s debt repayment plan feature helps you keep track of the balances you owe, tracks your progress toward paying off the debts, and even shows you how much money you’ll save if you pay off the debts more aggressively by raising your minimum payments. It can also incorporate your debt repayment plan into your monthly budget, which helps you set realistic debt repayment goals you can stick to.
Balancing savings and debt repayment might take a bit of planning, but it helps you get — and stay — out of the cycle of debt, so you’ll be more financially secure for life.
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