How To Start Saving When You’re In Debt

Spread the love

Complete Guide: How To Start Saving When You’re In Debt

How to start saving when you’re in debt can feel daunting, but it is a challenge that can be overcome with clear steps and the right mindset. Many people think they can’t save while paying off their debts, but with a practical approach, it’s possible to create both savings and a solid debt repayment plan. In this guide, we’ll explore how to do just that, giving you the tools and steps you need to build financial security and reduce your debt at the same time.

Step 1: Understand Your Financial Situation

Before you do anything, you need to know exactly where your money is going.

  1. Track Your Income:
    Start by writing down all of your sources of income. This includes your job, side gigs, allowances, or any passive income you have. Knowing how much you earn will help you understand how much you can allocate toward saving and paying off debt.
  2. List Your Debts:
    Make a list of all the debts you owe, such as credit cards, personal loans, student loans, or medical bills. Include the interest rates and minimum monthly payments. You can use a debt tracking tool or a simple spreadsheet.
  3. Track Your Spending:
    Record your expenses. The best way to do this is by using a budgeting app or writing everything down. Group your expenses into categories like groceries, entertainment, utilities, transportation, and any other recurring charges. This will allow you to spot areas where you can cut back.
  4. Know Your Current Savings:
    Before making a savings plan, check if you have any existing savings. If you don’t have an emergency fund, starting one should be a priority.

Step 2: Create a Realistic Budget and Debt Repayment Plan

Now that you understand your finances, it’s time to create a budget and debt repayment strategy.

  1. Set Up Your Budget
    Use the 50/30/20 rule, where:
    • 50% of your income goes toward necessities (housing, utilities, food, transportation).
    • 30% of your income is for discretionary spending (entertainment, dining out, shopping).
    • 20% of your income should go toward savings and debt repayment.
  2. Prioritize Your Debts
    Once you have your budget, focus on paying off the highest-interest debts first, such as credit cards. Use the debt avalanche method (focus on paying off the highest-interest debt first) or the debt snowball method (start with the smallest balance first). Whichever method you choose, make sure to pay at least the minimum amount on all your debts to avoid fees.
  3. Set Specific Goals
    Decide how much you want to save each month, even if it’s a small amount. This could be just 5% of your income, but consistency is key. As you pay down debt, try to increase your savings contribution as you free up more money.
  4. Use Budgeting Tools
    Consider using a budgeting tool like Mint, YNAB (You Need a Budget), or a simple spreadsheet to keep track of your spending and savings. These tools can help you stick to your budget, track progress, and adjust when necessary.

Step 3: Save, Even if It’s Just a Little

When you’re paying off debt, it can seem impossible to save. But it is essential to build a small savings buffer for unexpected expenses.

  1. Set a Savings Goal
    Aim to save at least 3-6 months’ worth of living expenses as an emergency fund. If that seems too big, start small. Set an initial target, like $500 or $1,000, and work towards it.
  2. Save Automatically
    To make saving easier, set up an automatic transfer into a separate savings account. This way, money is set aside for savings before you even see it in your checking account, which will help you resist the temptation to spend it.
  3. Cut Unnecessary Expenses
    Look at your spending and ask yourself what’s truly necessary. For instance, you might be able to skip some subscriptions, eat out less, or find cheaper entertainment options. Direct any money you save back into your savings.

Step 4: Build Up a Small Emergency Fund

Having a small safety net can keep you from falling deeper into debt in case something unexpected happens. This is another example of how to start saving when you’re in debt. Here’s how to do it:

  1. Start Small
    Even saving a small amount, like $5-$10 each week, can quickly add up. Try to keep your emergency fund in a separate account so you don’t spend it on day-to-day purchases.
  2. Use Money-Saving Apps
    Use apps like Acorns or Digit to save small amounts automatically. These apps round up your purchases to the nearest dollar and save the change, which adds up over time without much effort from you.

Step 5: Create Multiple Income Streams

Making extra money can speed up both your debt repayment and savings goals. There are many ways to increase your income.

  1. Find a Part-Time Job or Side Hustle
    Look for part-time or flexible work, such as freelancing, babysitting, dog walking, or delivering food. The extra income will make it easier to save more.
  2. Sell Unused Items
    Go through your home and sell things you no longer need. From clothing to gadgets, selling unused items can free up some money for both savings and debt repayment.

Step 6: Be Patient and Stay Consistent

Consistency is key to your success when you need to start saving when you’re in debt. While the changes you’re making today may not have a huge impact immediately, over time, you’ll see progress.

  1. Celebrate Small Wins
    Don’t forget to celebrate small wins, like paying off a debt or reaching a savings goal, even if it’s a small milestone. It will keep you motivated.
  2. Review Your Progress
    Regularly review your budget, debt, and savings. If something isn’t working or needs to be adjusted, make the change.
  3. Don’t Get Discouraged
    Paying off debt and saving simultaneously can feel overwhelming, but remember, it’s about progress, not perfection. Keep pushing forward and stay motivated by remembering your bigger financial goals.

Step 7: Track Your Results and Adjust When Needed

As your financial situation changes, revisit your budget and strategies. Maybe you’ll get a raise, or your debt will get paid off quicker than you expected.

  1. Recalculate Your Budget
    Adjust your budget accordingly. Once a significant debt is paid off, you can use the extra money towards savings or debt elimination on your other loans.
  2. Increase Your Savings
    Once you’ve made progress in paying down your debt, shift your focus toward increasing your savings rate or prioritizing other financial goals, such as investing for the future. This approach will help you build a stronger financial foundation while continuing to manage how to start saving when you’re in debt.

Step 8. Pay Back Debts and Save at the Same Time

It’s important to both save money and pay back what you owe. By doing both, you’re working on your money goals and learning how to start saving when you’re in debt.

  • Save while paying debts: While you’re paying back what you owe, try to also put a little money in your savings. It will help you feel safer and prepared for anything.
  • Be patient: It might take a little while, but over time, you’ll get better at saving and paying your debts.

How To Start Saving When You’re In Debt Guide For Beginners

In this guide, we’ve discussed practical steps for how to start saving when you’re in debt. The key takeaway is that you don’t have to choose between paying off debt or saving. By managing both at once, you’ll set yourself on the path toward long-term financial security. Patience, dedication, and small steps every day will make a big difference over time. Stay consistent, and you’ll be able to reduce your debt and build your savings simultaneously, creating the foundation for a healthier financial future.

Shop How To Start Saving When You’re In Debt On Amazon

How To Start Saving When You're In Debt

Trending now

Fringilla Phasellus Faucus Scelerisque Eleifend Donec
Aturna condimentum mattis pellentesque nibh tortor
Eleifend donec pretium vulputate sapien sagittis
Libero faucibus nistincidunt elementum integer