Should I pay off DEBT or SAVE first?

As much as we would like to believe that we live in a perfect world where there is always enough income to save and to payoff debt simultaneously this just isn’t always the case. It’s often a balancing act of determining what our priorities are. Many of us have been at the turning point where we decide that it’s time to commit to a juggling act with our finances.  Then, we start to encounter the struggles of trying to fluff up our savings cushion; while destroying the weeds of debt. It’s not easy deciding what to focus on first. Since there is no one size fits all method to achieving lofty savings while dwindling down debt; you have to find the way that works best for you.

Here’s a short guide to help you think about methods that will be most beneficial for you and your money.

Stay on Top with a Budget

Don’t skip this. Be sure to focus on your numbers. When you begin with this practice first, it enables you to better understand the exact amount of money that you have to operate with each month. Creating a budget will help you see where your money is going and it also helps you plan out how much money you can put toward paying off debt while adding to your savings. One way to get started with budgeting is doing it on a monthly basis, and if you are just now getting the hang of budgeting do it each week. Staying on top of your budget, helps you to spend based on your earnings or well below, then leads to reductions of accruing more debt. The less debt the more disposable income. On top of being clear on where our money is going, budgeting helps to reduce tons of money anxiety. Maximize your finance wins by committing to this step.

Reduce Discretionary Spending

Trust me, this is a solid winner if you can can forgo wants even for a short while. Discretionary spending applies to expenses that are not essential to the operation of your household. This can be money for recreational activities and random splurges. Thrift store runs, yard sales, clearance sales, all are considered non-essential spending regardless of what the low cost may be. Reducing your discretionary spending frees up more money that you can put toward your savings and getting out of debt. Choose a few months out of the year that you will focus on not spending any cash/credit on non-essential expenses. Speed up your debt payoff strategy or enhance your savings account balance by using this simple method.

Create an Emergency Fund

We all need an emergency savings account at our finger tips. Do you need a new set of tires over the next few months? Washer/Dryer making weird sounds? Think about emergency’s that you know are coming up that aren’t surprises. Work on getting this amount of money in your account to begin preparing for them. Create an emergency fund that has at a minimum $1,000 in it so you can pay cash for an emergency when it comes up. Things that can also be applicable for an emergency account is a car repair or emergency room visit. The money that you put toward your emergency savings monthly should be allocated in your budget. Get this small amount in there and begin hammering away at debt. To minimize money that you would have to spend out of pocket for emergency’s, look into Health Care Savings accounts that your job may offer for medical expenses, and AAA memberships to reduce the cost of mechanical issues, the list is endless.

Do you Have a Debt Repayment List?

Creating a debt repayment list will help you see where you are at with paying off your debt. It is not intended to frighten you but simply to let you know where you are so you have a clear grasp on where you are heading. Begin to chart and keep track of who you owe money to, how much you owe them, the payments you are making monthly, and when the expected payoff date will be. Grab a few highlighters and mark each debt off as you pay it down (for a snippet of excitement and energy to keep going). Any debt you payoff is a celebratory win.

Double Down on Debt

Part two of your debt repayment is to identify how you will prioritize this list. A couple of options are to use the snowball method (paying from the smallest debt to the largest debt), OR Interest debt payoff (paying off from the highest interest to the lowest interest).  There’s not a right or wrong way. Choose your tolerance level and the method of motivation that you need to keep going. After one bill is done, move on to the next.  As a reminder,  the money that you are putting down toward paying off debt should be allocated in your monthly budget.

By simply changing where you are putting your money on a monthly basis you can enhance your savings and reduce your debt at the same time. Keep all of your options open. There’s always the option of creating or getting a part-time job for the sole purpose of stacking up your savings account or to attack debt. Find the solution. Plan ahead and power forward.

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The Finance Bar is a personal finance suite helping women and couples achieve financial wellness through coaching, education, and an innovative learning hub on wheels. Creator Marsha Barnes is a Certified Financial Social Worker, Official FICO Brand Ambassador, and was named the 2018 Best Money Expert in the Net-Worth Category.

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