How to pay off debt and save money

how to pay off debt

You can pay off debt and save money by creating a realistic financial plan, budgeting your money, and searching for ways to increase your income. 

Whether you have credit card debt, student loans, bad credit loans, or personal loan options you are paying off, you may want to consider making more than the minimum payments to get out of debt faster. But what if you also want to continue saving money? For many people being debt-free is just as important as having an adequate rainy day fund. If you are trying to focus on both goals, continue reading to learn more about paying off debt and still saving money. 

Use a Budgeting Method

Budgeting will be extremely helpful with any financial plan, whether you are focusing on savings or paying off debt. Essentially, a budgeting plan involves tracking your spending and income to figure out ways to best use your money, depending on any short-term or long-term financial goals you may have. There are all kinds of different budgeting methods for beginners and experts that can be used as templates for getting started; here are a few examples: 

The 50/30/20 Method

The 50/30/20 method instructs that you budget 50% of your income to your expenses, 30% towards things you want, and 20% towards savings. If your goal is to save and pay off debt simultaneously, you could go a few months where that 30% goes towards paying off debt. Or you can split up each percentage category into whatever increments that make sense for your goals. 

Envelope Budgeting

The envelope budgeting method involves dividing all your spending into categories and labeling either actual envelopes or doing so digitally (several apps can help with this). From here, you’ll allocate all your income into these categories. Once the funds from each envelope hit zero, you cannot spend any more on that for the month. This can be a great way to both pay off debt and save because it helps prioritize those things right from the beginning of when you get paid. 

The Put-Yourself-First Budgeting Method

The put-yourself-first budget is simple; once you take care of your necessities like rent, and utilities, you allow yourself to allocate money towards whatever goals you may have. In this case, that will be saving and paying off debt. Once those goals are taken care of, you can then spend your money on whatever you want. 

The Zero-Sum Budget

With zero-sum budgeting, you will have to allocate all your income to some kind of expense or goal. This method can be extremely helpful if you are someone who mindlessly spends money. It can help you pay attention to every dollar that you spend. 

Figure Out Which Goal is the Priority

Tackling two very different financial goals at the same time can be challenging, especially when the goals are opposites in a way. However, as long as you manage money as you need, you should be able to work at both goals; there are essentially two ways you can go about this:

Prioritize Saving and Debt Payoff Equally

You can allocate an equal amount of money each month towards savings and debt payoff. That way, you know for sure that you are working towards both saving and paying off your debt. You can allocate as little or as much as you want or be able to, but the goal is to focus on them simultaneously without neglecting the other. 

Prioritize One Over the Other, but Don’t Forget About the Later

You can always also prioritize one goal over the other, depending on how dire each financial part of your life is. For example, let’s say you have several credit card balances that are significantly eating away at your income. In that case, you may be more focused on paying off those debts than building your savings. On the other hand, if your debt is manageable, but you have nothing saved up, you may want to focus on building your sayings. And so, depending on importance, you can allocate more money to one goal over another, but that does not mean forgetting about the other goal! Make sure that both are priorities, even if one is currently more important than the other. 

Some Strategies That Can Help With Debt Payoff 

Haven’t tackled paying off debt before and are unsure where to start on your debt repayment journey? Here are some debt repayment strategies that are commonly used to make debt payoff affordable and manageable: 

The Debt Avalanche Method

The debt avalanche method requires you to pay your highest interest rate debt first while still making the required minimum monthly payments on your other debts. Once you pay off your highest-interest debt, you’ll move on to your second-highest-interest debt and so forth. This can be a great way to save money on interest and help motivate you to continue with your debt payoff plan. 

Debt Consolidation or Debt Refinancing

Debt consolidation is the process of paying off and combining multiple debts using one loan. With this, the goal is to get a more manageable and affordable repayment option. Refinancing had the same goal as debt consolidation, but instead of working with one loan, you’ll be paying off one loan with another one. You can use this technique for several different kinds of loans for which you owe money. For example, you can consolidate personal loans, payday loans, title loans, and more. 

Using a Balance Transfer Card As a Debt Management Plan

A balance transfer card allows you to pay off credit cards with another credit card. Through this, multiple credit cards can be transferred into one credit account. Like debt consolidation and refinancing, the goal here is to get a more manageable and affordable repayment plan. A balance transfer credit card can help your credit score too. 

The Debt Snowball Method

The debt snowball method involves paying your highest debt amount first while making the minimum required payments on your other debt. Once that first one is paid off, continue until you get to your smallest debt. This method can be a great way to get motivated when paying off debt and can help you gain momentum as you pay off your debts. 

Simply Paying More Than the Minimum Balance Due Each Month

If you want to start small, you can also simply pay more than the minimum amount due on all your debts. This way, more money will go towards the principal amount each month without a massive change to your finances or a large debt repayment plan. 

Techniques To Help You With Savings

More than one-third of Americans say they probably or certainly could not come up with $2,000 in the next month to handle an unexpected need, such as a major car or housing repair.1 Haven’t worked on savings before and are unsure where to start? Here are some techniques that can help you prioritize saving even with low income

Set Up Automated Savings

Automated savings can be a great way to save without thinking about it. You can set up all kinds of automated commands from your checking account. For example, whenever you get a certain amount, you can set up a command that deposits some of that straight into a savings account. If you are someone who has a hard time allocating money from your paychecks, automated savings can be a big help. 

Look Into Investment Savings Rather Than a Standard Savings Account 

If you are someone who has trouble keeping their savings untouched, you may want to look into savings products and accounts that limit access to them. For example, CDs cannot be withdrawn from for several years unless you want to pay a significant penalty. These types of accounts and products work well when saving for long-term goals. 

Set up a Savings Goal

This is one of the easiest ways to motivate yourself to save. Think about a goal you want to reach with savings. With an amount in mind, you’ll be more likely to hold yourself accountable, especially when reaching the deadline. For example, you could try to save $1,000 in 30 days.

Focus On Your Spending Habits

One of the most prominent reasons that people have trouble spending is because of their bad spending habits. If you are also struggling with things like impulse shopping or overspending, then taking a look at those habits and taking steps to change them can really help you focus and prioritize savings. 

Key Takeaways With CreditNinja: Paying off Debt and Saving at the Same Time

When paying off debt, you can still focus on savings! There are a few strategies that can work to help you work on both of these things at the same time. You can prioritize these equally or focus on one more than the other; the best idea depends on your financial situation. Regardless of your decision, a budget will be a great place to start. 

There are so many techniques out there that you can use to save and pay off debt. For example, with debt payoff, you can use the avalanche method, snowball technique, or simply pay more than the minimum amount due. For savings, you can set up automatic savings accounts, look into savings products and account types, or focus on your spending habits. And so, either goal you want to focus on, there are places to start. 

For more info on paying off debt vs saving, check out the CreditNinja Dojo!


  1. American Budgeting and Saving Behavior from FINRA’s NFCS | In

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