Be it student loans or an underwater mortgage; debt can make it extremely challenging to save toward your future goals. Our software empowers you to simulate debt pay downs and stay on top of interest expenses and repayment plans. With the right mindset and our helpful tools, you can start saving again – instead of having your entire paycheck go to debt and monthly expenses.
Here’s how you can save money and pay down debt at the same time:
Create a Budget
It’s essential to create a budget to properly manage your finances and avoid overspending. If you’re planning to save money and pay debt, you’ll want to limit expenses and increase your income. Many financial experts recommend the 50/30/20 rule as a baseline for budgeting. This rule means that you spend 50% of your income on necessities, 30% for wants and that you save the remaining 20%. Debt falls in the “necessity” category, especially if you want to reduce cumulative interest.
Your budget should outline the following:
- Income (salaries, bonuses, and investments)
- Fixed expenses
- Variable expenses
Fix expenses include bills that stay the same each month, such as your mortgage payment or alimony. On the other hand, variable expenses may change (i.e., food, electricity, water). You should compare your budget to actuals every month and look for areas that you can improve.
Track Your Spending
You can’t reap all the benefits of a budget if you don’t have the tools or discipline to track your expenses. Our software gives you customized analytics and insights to help you manage your financial activity and form better spending habits. Not only that, but our software alerts you when you reach pre-defined thresholds, preventing you from spending more than budgeted.
Most people don’t want to scroll through an Excel sheet or bank statement to see where they spent their money. Our platform provides you with stunning graphics to help you visualize your monthly spending and overall financial portfolio. You can also view up to two years of transactions – perfect for when you’re trying to track down a significant expenditure.
By tracking your spending, you can stick to your budget, avoid spending too much, and ultimately save more money.
Increase Your Income
Although easier said than done, increasing your income can help you pad your savings account while paying debt. Remember the expression, “time is money.” Working multiple jobs can lead to burnout, so maximizing your earnings without sacrificing too much free time is a smart strategy. Learn more about how to earn extra income each month[ew1] .
Pay High-Interest Debt First
Most financial advisors will tell you to pay high-interest debt first. The reason behind this is apparent: you can avoid paying a significant amount of interest. Remember, some debt has compounding interest, meaning you’ll pay interest on interest. As you can imagine, pushing high-interest debt to the side only leads to more financial woes.
A popular tactic to pay off high-interest debt is to use the avalanche method. With this method, you pay off the debt with the highest interest rate first (regardless of the debt amount). However, you still make at least the minimum payment on all other debts.
Enroll in Automatic Payments
Specific lenders, most notably the U.S. Department of Education, will offer an interest rate deduction if you set up automatic payments. If you have direct loans, you can save 0.25% in interest. Although a mere 0.25% doesn’t sound like much, it can certainly pay off in the long run.
Refinance Your Debt
You can build up your savings by refinancing your debt and subsequently lowering your monthly payments. Refinancing debt is an excellent option if you meet two conditions – you have a significant amount of debt, and you have high interest rates. If you only have $1,000 worth of credit card debt, refinancing doesn’t make sense. Be mindful of loan origination fees – you don’t want refinancing to cost more than the interest on your old debt.
The concept of transferring a balance is quite simple – you transfer a balance from a card with a high-interest rate to a card with a low-interest rate. Consequently, you lower your monthly payment, and you can easily chip away at the principal. You should remember that balance transfers can cost 2 – 3% of the card balance unless your credit card offers an introductory 0% fee.
Take Advantage of Employer 401(K) Benefits
Contributing towards your 401(K) is a phenomenal way to invest in your future and take advantage of your employer’s compensation package. If your budget allows, try to contribute at least the same percentage of your salary that your employer matches. For example, if your employer matches up to 6%, you should also contribute 6%. However, many financial experts recommend savings six months of living expenses in an easily-accessible account before maxing out your 401(K).
When you feel swamped with debt, it might feel like saving money is entirely out of reach. Our platform enables you to track your expenses, simulate debt pay downs, and receive critical insights about your spending. We’re here to help you on your debt paydown journey – every step of the way.