It’s common to have competing priorities when it comes to your finances.
You may have debt that you want to tackle, and you may also have things you want to save up to purchase.
This or that? Should you save or pay off your debts?
You knew this answer was coming: You should do both!
Equifax, one of the companies that determines your credit score, says: “Our recommendation is to prioritize paying down significant debt while making small contributions to your savings. Once you've paid off your debt, you can then more aggressively build your savings by contributing the full amount you were previously paying each month toward debt.”
We think that’s pretty solid advice!
Here’s an example of how to do it:
- Be sure you’re making at least the minimum payment on all of your debts, including credit cards and loans.
- Choose one of your debts, and put some extra money toward paying it off.
- As soon as you pay it off, put that extra money you were using for the debt into a savings account (preferably one that will earn interest).
- Then, choose another debt to start paying off and continue the cycle until you’re both out of debt and have a financial safety net.
One of the easiest ways to start saving? Make it automatic! It’s easy to set up an automatic transfer from your checking account to your savings account that coincides with payday. If you never see the money because it automatically goes into savings, you’re less likely to spend it.
We know it’s hard, but even an extra $100 a month into your savings account over the course of a year will add up to $1,200 (plus interest), which should be enough to cover that unexpected car repair bill that contributed to your debt in the first place!
If you get a refund from the IRS this year, you might consider putting that into your interest-earning savings account to give it a quick boost!
Here are a few painless ways to cut your expenses, that will help you pay down those debts and grow your savings even faster:
Check those subscriptions! You might be paying for subscription services that you no longer use. Comb through your bank account and credit card statements and look for subscriptions you can cancel.
Cut back on cable. If you’re streaming most of your shows, do you really need to be paying for live TV, too? Call your cable company and see if there’s any way to get your bill reduced. If they aren’t willing to help, see if switching service providers will save you money instead.
Hit up the library. If you download a lot of books, check to see if those books are available at your local library – either in paper form, or available for a free download.
Need some more advice? CommonWealth One is here for you with a ton of resources to help you live your best financial life.
In addition to our free financial education resources available, we recommend checking out the replay of our webinar on Paying Down Debt and our webinar on Creating A Budget you can live with.
