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The prospect of paying off debt can be overwhelming! While it may feel like it should be your only financial goal, it is the first step in your savings journey. Reducing debt doesn’t have to be your singular focus; you can decrease debt while still achieving your financial goals!
Set Your Priorities
Paying off debt while maintaining your savings goals requires detailed planning. Start by setting clear financial goals. Think about where you want to be in 5 or 10 years. Will you be purchasing a new home? Planning a wedding? Pursuing an advanced degree? Welcoming a baby? Reducing debt should be first on the list, followed by your top savings goals.
SmartyPig helps you achieve multiple savings goals simultaneously with easy account setup and automatic recurring deposits. Create a variety of accounts to support your savings goals, and label them accordingly. Set up regular deposits for each, then track your progress regularly. Celebrate your achievement as you reach each savings goal!
Take Another Look at Your Budget
Getting out of debt requires sacrifice as well. First, take an honest look at your current budget. Get a clear picture of how much you owe, and most importantly, stop borrowing or buying on credit.
Keep your savings goals top-of-mind as you identify areas where you can reduce expenses. Remember, you can save big with small changes!
When organizing your new budget, allocate 50% for living expenses, including housing, utilities, transportation, and food. Next, allot 20% for your savings goals, including an emergency fund. This fund should be enough to cover your mandatory expenses for 6-12 months in case you lose your income. Your emergency fund may be the one thing that keeps you from going further into debt when you have an emergency expense that requires immediate attention, like an unexpected car repair or damage to your home. Earmark 15% to paying down debt, your student loan, car loan, and credit cards. Finally, the last 15% is available for travel, donations, and other discretionary expenses.
Plan to Reduce Debt
Lowering the interest rate on your credit cards and making payments strategically can increase the speed you reduce or eliminate your debt. If you have a low interest rate, pay the minimum amount each month to put more money towards your savings goals. If your interest rate is high, try to pay more than the minimum amount each month to save on interest charges over time.
Find Ways to Add Income
Whether you are paying off debt or saving for a major purchase, a side hustle is an easy way to make extra cash and advance your savings goals. Best of all, when you turn your passion into a business, it won’t feel like work!
Reducing debt while maintaining your savings goals is simple when you have clear priorities, a sensible budget, and a plan to pay off your debt.