How to Save Money While Battling Debt
September 9, 2022
Can you save money while battling debt? While the idea seems oxymoronic, there are definitive ways that you can work towards reducing your debt while saving for the future. According to the Federal Reserve, American households' debt increased 8.3% in the first quarter of 20221. The average American holds over 96,000 dollars in debt2. Yet, 43% of Americans want to save more3. What steps can be taken to ensure that you’re on the right track to paying off your debt and planning for the future?
Get the lay of the land: It is important to have a complete and comprehensive understanding of the debt you owe, the interest rates and potential fees you need to pay, and timelines that you must follow. Take advantage of any free credit counseling services that your bank or credit union offers. Affinity offers free credit counseling4 that not only provides your credit score but also insight on how to improve your entire financial situation so that you can examine your finances and make a plan.
Plan your budget: If your loans or debt payments are a specific amount each month, your personal spending must be accounted for. If you have non-negotiable payments, a budget is the best way to stay organized. When planning how to budget, look for areas where you want to reduce spending and others where you want to be able to spend more money and can pay down debt. Calculate what you would like to save for and how you can get there.
Expect the unexpected: Emergency spending is especially difficult when you are in the midst of paying off debt. There are so many expenses to account for when paying down loans and credit card bills. Adding a necessary emergency expense to your list only makes matters more difficult. Trying to meet your regular bills like mortgages or rent, utilities and groceries can be challenging enough. By creating an emergency fund, you can ensure there are adequate funds in your account in case of an unexpected life event. Make a goal to have 3 months of emergency expenses saved to cover your necessities. If that seems too daunting, you can include the fund in your monthly budget and slowly add to it.
Decide on your debt repayment strategy moving forward: Think about what would take the biggest burden off your plate. There are two common methods to paying off debt. With the “snowball” method, you pay your smallest debts in full and then “snowball” to pay off your larger debts one by one. The other option is the “avalanche” method, where you put your efforts towards paying off high-interest debt first. It is known to take longer than the “snowball” method. Find the best strategy that works for you and stick with it.
Make sure your savings account is working for you: Since every penny counts, you want to make sure that your savings account is helping you achieve your financial goals. Affinity offers up to 3.50% Annual Percentage Yield interest rates on its SmartStart savings accounts5 with zero fees and no minimum balance, with a maximum balance of $5,000. That 3.50% Annual Percentage Yield is far beyond the national average and allows you to make money while you save money.
The idea of saving and repaying debt can be daunting. It is important to maintain a sense of financial wellbeing as you continue your journey to a debt-free life. That is why Affinity offers services that are meant to help, guide, and counsel you through these challenging times. Visit our website 6 or stop into one of our branches7 to learn more about how we can support you in meeting your financial goals.
This information is for informational purposes only and is intended to provide general guidance and does not constitute legal, tax, or financial advice. Each person’s circumstances are different and may not apply to the specific information provided. You should seek the advice of a financial professional, tax consultant, and/or legal counsel to discuss your specific needs before making any financial or other commitments regarding the matters related to your condition.