If you’re constantly anxious because you have bills to pay, debts to address, and no money left over for savings, you’re not alone. But you don’t have to live this way. There are ways that you can pay off your debt while also planning for emergencies and the future.
According to a 2022 Bankrate survey, only about 53% of U.S. adults have more money put away than in credit card debt. Even if you have no credit card debt but you also have no savings, that’s not a good position to be in. In a Bankrate article, Greg McBride, chief financial analyst at Bankrate, said: “Without emergency savings, you could be one unplanned expense away from having high-cost credit card debt.”
That’s why it’s important to not only pay off your debts, but to also put money away as well. But how does paying off your debt help you save?
You gain better spending habits. By knowing what to expect each month, you can better decide how to allocate funds, which will ultimately allow you to refocus your cash flow toward paying off debt and saving more.
While budgeting, make sure to decide which extras you need and which ones you don’t. Eating out can be pricy, so pulling back on restaurants and expensive entertainment can help you put dollars aside for good use.
You’ll learn how to budget. By deciding to pay off your debts and figuring out how to approach it, you’re gaining greater financial literacy. With greater financial awareness comes better choices. Each month, when you decide where your money goes, remember the 50/30/20 rule. This means you put 50% toward necessities, 30% toward wants/recreation, and 20% toward savings and debt repayment.
You’ll have more money to put away. Eventually, you will pay off your debt and when you do, you’ll have even more money to put toward your savings account and your retirement.
If this all seems too daunting, seek out help from a credit counselor. They might decide you’re a good candidate for a debt management plan, where they’ll negotiate with your lenders to lower your interest rate and consolidate your loans into one affordable monthly payment. A credit counselor will also help you create a budget—one where you can pay off debts and save at the same time.
Ready to save and repay your debts? Consumer Credit of Minnesota offers credit counseling, debt management, and financial literacy workshops.