5 Easy Steps to Tackle Your Debt While Saving
Debt can be a heavy weight on your finances. It can hinder your spending in the short term and cause your savings to fall far behind in the long term. Fortunately, by being specific about your priorities, you can save money and pay down your debt.
Follow these five easy steps from Bank of America’s Better Money Habits to tackle your debt and reach your savings goals:
- Find out how much money you owe.
The first step to reducing debt is to find out exactly how much you owe. Though it may seem a little daunting at first, calculating your total debt will give you a sense of where you’re starting and help you create a realistic plan of action. You can get a good picture of your debts and balances by pulling your free credit report at www.annualcreditreport.com.
To stay organized, create a list that includes your creditor’s name, the total amount due, the minimum payment required, and the monthly due date. Having this list will help you stay on top of your monthly bills.
1. Create a budget to determine how much you can save.
Creating a budget is one of the most effective ways to manage your money. To start, calculate your monthly expenses. Be sure to include your rent or mortgage, car expenses, utility bills, food, and the minimum payment for each of your debt repayments. We’ve made a handy excel sheet that will automatically make the calculations, and has put in a lot of the monthly expenses: Savings Tools and Resources - America Saves.
After you complete your spending and saving assessment, if there’s no wiggle room, you might want to cut back, whether you cancel cable or other monthly subscriptions that you don’t need, negotiate a more affordable phone plan, or reduce how often you go out to eat.
2. Contact your creditors to explore repayment options.
You may be able to negotiate a more affordable payment plan with your lenders. Make a phone call to find out your options. Student loans, for example, might offer an option for income-based repayment or a means to apply for forbearance, which may buy you time before your next payment is due. If you have a large outstanding balance on a utility bill, most gas and electric companies are also willing to work with you and create a payment plan. >> Learn about student loan repayment.
3. Set a goal and make a plan.
Now that you’ve done the legwork, you can safely say that your goal is to pay off debt. We know that savers with a plan are twice as likely to save successfully, but the same can be said of paying down debt.
While you continue to make the minimum monthly payment on your other debt, plan to pay a little extra each month on your highest interest bills. Interest accrues each month so the longer you wait to pay down your high interest debt, the more money you’ll owe in the long run.
Once you’re able to pay your balance in full, you’ll have one less bill to worry about.
Give yourself a realistic timeline for when you’d like to pay down each bill and stick to it. Even when the going gets tough, pay the minimum balance on time to avoid damaging your credit score over time.
4. Commit to your goals.
Taking the America Saves pledge will help you reach your savings goals. When you commit to your goals through the pledge, you will receive text message reminders to make your savings deposits. We also send you helpful savings tips and resources to help you reach your goals!
Sign up is easy: you tell us how much money you want to save each month and how long you want to save for, and we’ll encourage you to reach your goals! >> Take the America Saves pledge.