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How to Save Money While Paying Off Debts: 7 Helpful Tips

While you may hesitate to incur debt for fear of being unable to repay it promptly, a strategically placed loan can serve as a helpful stepping stone toward big financial goals you’d struggle to achieve on your own. Some examples include purchasing your first home or perhaps pursuing further education. There may also be times in your life when debt may be unavoidable in the face of circumstances like medical emergencies or urgent home repairs. The trick to managing debt effectively is not to be afraid of it but to instead approach it systematically, with a clear plan in mind. 

You may also think that your savings will need to take a back seat to prioritize debt repayment, but this is not necessarily the case. Though it might be difficult at the outset, some smart financial choices can make it possible for you to set aside even a small part of your income while also paying your debt on schedule. Modern banking institutions, for instance, offer high-yield savings solutions and other tools that can help maximize returns on your savings. These can then make it easier to meet these dual objectives at the same time.

The purpose of this article is to provide practical and effective tips for juggling savings and repaying debt simultaneously. The following strategies can help you achieve financial stability and work towards a debt-free future without sacrificing your savings goals:

Store Savings in a High-Yield Account

These days, there are ways to earn more on your savings without too much additional effort. In particular, a high-yield savings account offers significantly better interest rates compared to standard savings accounts. Thus, your money grows faster with the same amount of principal. This type of account is typically offered by online banks, which have lower overhead costs and thus have room to offer their customers higher interest rates. Placing your savings in one of these accounts ensures that the money you set aside works harder for you, compounding and growing over time.

Take some time to research and compare the high-yield savings accounts available from various banks. Look at factors such as interest rates, minimum balance requirements, and fees to find the best option for your needs. Many online banks, like one of the Philippines’ leading digital banks Maya, offer competitive rates with no minimum balance or monthly fees, which makes them accessible to a wide range of savers. 

Create a Realistic Budget

You’ll have an easier time balancing debt repayment and savings if you understand where your money goes each month. Start by tracking all sources of income and categorizing your expenses. This includes fixed costs like rent or mortgage payments, utilities, and groceries, as well as discretionary spending such as dining out, entertainment, and shopping. Once you have a clear picture of your financial situation, you can identify areas where you might be overspending and make corresponding adjustments.

One of the measures you can take is to set spending limits and allocate funds specifically for debt payments and savings. This might mean adjusting your lifestyle to reduce discretionary spending or finding more cost-effective alternatives for essential expenses. With a realistic budget helps, you can stay disciplined and manage both priorities without feeling stretched too thin. 

Pay Your Highest-Interest Debts First

High-interest debt, such as credit card balances, can quickly snowball out of control. Tackling these debts first can save you significant amounts in interest charges over time, which you can then save and invest in the future. Focus on clearing these debts aggressively while making minimum payments on other debts until they’re fully taken care of. 

Automate Savings and Payments

Automation can be your best friend when managing your finances. Set up automatic transfers to your savings account so that you won’t have to manually set aside part of your income or worry about accidentally spending it. Similarly, automating debt payments helps you stay consistent and avoid missed payments that lead to additional fees and interest charges. Financial apps can also help you manage these processes and make it easier to stick to your financial plan.

Set Achievable Milestones

Breaking down your financial goals into smaller, manageable milestones can make the process less daunting. Set specific targets for both debt repayment and savings, such as paying off a certain amount of debt or reaching a particular savings goal each month. Consider celebrating these milestones in small ways to boost your motivation and keep you on track toward your larger financial objectives.

Negotiate with Your Creditors

If things get a little overwhelming, don’t hesitate to reach out to your creditors to negotiate better terms because it’s also in their best interest to secure some funds from you rather than none at all. You may be able to get lower interest rates or more favorable payment plans by simply asking. In addition, consolidating multiple debts into a single loan with a lower interest rate can simplify your repayments and reduce the total interest paid.

Find Ways to Boost Your Income

If you have a lot of outstanding financial obligations at present, you may want to increase your income at least temporarily to accelerate your debt repayment and enhance your savings. Try taking on side gigs or part-time jobs to supplement your primary income. Even selling unused items around your home can generate extra cash. These additional income streams might just provide the financial flexibility you need to meet your goals more quickly.

Balancing debt repayment and savings is a challenging but achievable goal with the right strategies. A proactive and disciplined approach can empower you to work more confidently towards financial stability and freedom. Remember, every step you take brings you closer to a more secure future.

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