How To Save While Paying Off Debts
If you find yourself drowning in debt and can’t afford your monthly payments, you may think that you are trapped. However, there are actually plenty of ways to spend less and eliminate your debt, if you can just stay focused on your goal of becoming debt-free.
A sound financial plan involves setting goals and striving to reach them. Be reasonable in your expectations of how long this process will take so you won’t lose hope before the desired result is reached. When it comes to paying off debt, there are many ways to save money.
Paying off debt doesn’t have to be extremely stressful. You just need to find ways to save money, so you don’t feel strapped for cash. You might want to give these six strategies a try to see if they can help you out.
1. Track Your Spending:
The first step in saving money is understanding where your money goes. One of the best ways to do that is by keeping a written, digital, or app-based budget of all the things you buy. Expense tracking apps help you stay on top of what you spend, ensuring you don’t miss anything.
Furthermore, expense tracking apps can provide visualizations of your spending habits. Expense tracking is also helpful for accomplishing financial goals as you can better stay accountable with others who are working on debt repayment, since they can see what you’re paying off and how much progress you’re making.
Here’s a list of the top free apps that make tracking easier than ever before.
In addition, don’t have a conversation about which card to pay off first, just choose to start paying off high interest rates. These cards will be more expensive to maintain, so they should be prioritized during repayment.
Try to pay one of these cards off every month (or sooner). As an added bonus, paying down higher interest debts can often lead to lower loan rates, as lenders take into account other balances when determining a new loan rate.
If you’re unsure of the process for transferring balances from a high-interest credit card onto a low-interest account, it might be worth your time to consolidate debts onto one card.
2. Make A Budget And Stick To It:
Knowing you have a spending problem is not the same as actually fixing it. I have found the best solution is to tell yourself how much money you are allowed to spend every month, then to take measures to keep your spending in line with what you allow.
There are several methods to help you budget your money, including the use of budgeting apps, tracking your spending in a notebook, or even through the use of an envelope system. Whatever your preferred method, it should work for you and be sustainable in the long run. It’ll make your wallet smile!
Make a plan for what that number looks like, including how long it will take before you hit zero again, then break up your plan into short-term goals. You might want to start with something small, like $20 a week, so you’re not discouraged by being unable to pay that much at first.
Within a few weeks, the amount should increase to the desired monthly amount. It might be hard at first, but you’ll get the hang of it. And then it’ll get easier. And before you know it, you’ll be in control of your finances without feeling guilty about spending.
This is all possible through software and some online banking apps. I recommend Mint, which can help you track your spending and set budgets, while Bank of America has some excellent tools for online banking that can help you make plans and stay on track.
Some people also use envelope systems to help them budget their money. When they go shopping, they only spend what they have, in cash only, inside labeled envelopes. This is similar to when they spend with a credit card, except that when there with cash, they only have as much as the envelope can hold.
You will need to do extra work if you choose this method, but it will provide an old school feeling and experience.
3. Use A Debit Card Instead Of A Credit Card
By making your purchase with a debit card instead of a credit card, you won’t accrue interest, but you will need self-discipline to avoid buying more than you can afford. Consider these options if you use a credit card on a more or less regular basis: signing up for an introductory rate with your credit card company, automatic payments, or setting up a monthly payment schedule.
Setting up automatic payments for these things will make sure you don’t forget to pay and also that any required minimum payments are made on time. Besides being stress-free, this will also make sure you won’t pay any late fees and that your interest rates remain low.
Another idea is to use two credit cards. One should be used for daily purchases and the other should have a higher limit, as it will carry rewards points or other incentives. So, you’ll never have to go beyond your means.
4. Cut Down Some Expenses:
Unless you want to wait years to start a retirement account, you are going to have a tough time building up savings if you still spend extra cash on things like movie tickets, snacks, and coffee from Starbucks. If you can cut down on just a few of these small expenses each month, they will add up over time.
If you really think about it, there are many superfluous expenses which could be eliminated without the trade-off being that drastic. Plenty of expensive indulgences could be eliminated, without entirely parting with them.
Consider everything you buy as entertainment – for example, is it necessary to see friends every weekend? Can someone else pick up lunch? Will you be driving all the time or is it possible to use public transportation instead? Driving everywhere may not seem like a big expense, but it will take up a significant chunk of your pay when you want to be free of debt.
Unsure of how to start cutting back? Try putting away $100 every month. After three months, you’ll have enough saved up to get rid of one of those extras! After seeing how much you save each month and growing in your ability to stay afloat, it might be a good idea to up the amount each month. When all of your spending on extras is out of the way, try cutting some more.
5. Get Cash Back On Some Of Your Purchases:
If you want to become debt-free, there’s a fast and easy way: sign up for a credit card that pays you cash back. You’ll receive an incentive as well as lower monthly rates.
Look for a card with an annual fee. when paying off debt and keeping track of your earnings, always calculate the interest so you know what’s worth it. Let’s say you pay off $1,000 worth of debt in six months and earn 2% cash back. You’ll end up with $20, too.
An upfront payment of that size could cover a meal but you need to take into account the interest, if you pay 18% APR for a purchase of $1,000 and repay it over six months, you would pay over $40 in interest, eating up your entire earnings in cash-back bonuses.
One strategy for credit card management is to just use one card and have the capability to better track your finances and receive immediate corrections if any discrepancies are found.
This can be done by combining your debts on one card, if available. This may help you create a monthly budget that will better suit your financial needs and focus on clearing those debts for good, instead of focusing on which ones get paid off first.
6. Calculate The True Cost Of Borrowing Money:
Small changes, like an extra $10 or $20 each month on your payments, might not seem like much to you, but they add up fast.
For example, if you owe credit card companies hundreds of dollars every month, even making a few extra payments every year can significantly decrease your debt. Just think of the money you put towards debt as an investment and keep in mind that the rates are low and the timing is great, so take care of your debts now.
If you can afford it, add an extra $50 or $100 a month. In this way, even small monthly payments will make a big difference over time. Plus, by setting aside money for debt repayment before you spend it elsewhere, you’ll be less likely to find yourself in worse financial trouble later on.
Right now is a good time to make control of your finances a priority if you’re finding yourself with a ton of debt.
But believe it or not, it’s possible to recover; if you make this commitment, you’ll be able to rid yourself of all your mounting obligations. You’ll feel good about your situation and save thousands in interest charges.