How to Save When You're in Debt: A Step-by-Step Guide
If you’re in debt and want practical advice on managing your finances, you’re in the right spot!
This blog provides step-by-step advice on how to save while you’re in debt, so you can achieve financial stability and begin to grow your bank accounts debt-free.
If you experience these “challenges,” we can help:
Limited income - Not having enough money to pay bills
High-interest rates - Falling further behind on debt payments
Lack of financial knowledge - Not knowing where to start
The temptation to spend - Sacrificing their quality of life
Unexpected expense - Not being able to save enough
We put “challenges” in quotation marks because they’re totally normal and experienced by everyone. CC&Assoicates can work with you to overcome them too.
CC & Associates is a financial service provider helping women and families prepare for their futures and organize their finances so they can make big purchases, save for retirement, and stop worrying about money.
Book a call with us here for 15-min a Q&A call, where we will answer any question you have about budgeting, investments, or insurance.
Now, let’s get into it.
When you’re in debt, especially credit card debt, you’re likely paying high-interest rates and may struggle to make monthly payments.
This usually leads to a cycle of debt that can be difficult to break free from without proper financial management.
By learning how to save money and manage your finances more effectively while in debt, you can start to take control of your situation and work towards paying it off.t. This can help reduce your stress and anxiety levels, improve your credit score, and ultimately achieve your financial goals.
In addition, learning how to save money will help avoid falling into the same situation in the future.
Here are five things you can do right now to build your financial success:
1. Stick to a budget
Write down everything and keep track of where your money is going, even if you’re not proud of it. Remember, you’re the only one seeing this document.
This is a learning experience and the goal is to be aware of bad habits.
Analyze if there are any expenses you can cancel, such as subscriptions or monthly food orders. Finally, only spend what you make!
2. Prioritize high-interest debt
Write down all your loans and when they are due in order of highest interest. If possible, move your debt to a lower-interest source.
3. Explore debt relief options
Consider combining all your debt into one manageable payment with a consolidation company.
4. Build an emergency fund
Start small and allocate whatever you can afford. The overall goal should be six months' worth of income.
5. Make saving a habit
Allocate whatever you can afford that month. The amount can change, but always try to save what you can. Don’t be unrealistic or get too ambitious!
It’s common to hear other financial advisors say to focus solely on your debt when in debt so that you can take back ‘your income’.
This makes sense if you are buying cars or houses or deciding to take extravagant vacations.
This does not apply to saving money for when life happens or for your future when you’re done paying off your debt.
The goal is to increase your net worth, which can be calculated by subtracting your Assets (what you own) from your liabilities (what you owe).
Some practical advice from Mackenzie Campbell, Life Insuance Advisor at CC&Associates.
Mackenzie Campbell, Life Insurance Advisor
“When I was paying off my student debt, I was hyper-focused on just paying off the debt - I was living at home, and almost every extra penny was going to my OSAP loan and my student line of credit. My mistake was that I wasn’t saving anything, so although my debt was decreasing, I always felt like I was so broke.
I realized that once my debt was paid down, I’d have to start over again from the ground $0. So, I made a change. I decided to start saving $100/month while also paying down my debt so that my bank account was increasing while my student debt was decreasing - or, in other words- my assets were increasing as my liabilities were decreasing. This was a great idea because I had a positive net worth when I finally paid off all my student debt! Although some may think this is redundant, I needed to see my money accumulating to decrease my temptation to overspend. It worked for me, and it might work for you.”
Becoming debt free takes a lot of time and effort, but with dedication and perseverance, it is possible to overcome debt and achieve long-term financial success.
Remember, don’t be too hard on yourself and give yourself lots of compassion - especially in the beginning. Start slow and stay consistent!