Paying down debt and saving for the future—which goal should be your top priority?
The truth is, the debt vs. savings decision doesn't have to be all or nothing. With the right plan in place, it's possible to find a balance between reducing debt and increasing your savings.
Here are some basic steps you should follow to build your savings while reducing your debt:
Start with a budget
First things first, you need to create a budget so you know how much money you can put towards your goals. Start by listing out all your monthly expenses. This includes your mortgage or rent, insurance, utilities, groceries, car expenses and payments for credit cards and loans.
Next, track your spending to see where you might be able to save money. For example, try packing your lunch, brewing coffee at home and canceling cable or other subscriptions. For more helpful budgeting tips and tools, click here.
Create an emergency fund
We all need money set aside in case of emergencies like car or home repairs and medical bills. If you don't have anything saved for the unexpected, you might need to rely on credit cards, which will make it more difficult to pay off your debt. Before you focus on paying down your debt, try to save at least $1,000 for unplanned expenses. Keep this money in a separate savings account where you can access it easily in the event of an emergency.
Focus on debt repayment
Once you've started your emergency fund, you can begin to tackle your debt. Remember, you should always pay at least the minimum required amount on all your debts each month. This will help you avoid paying extra in interest and fees and prevent your credit score from dropping.
When you're ready to eliminate your debts faster, start paying more than the minimum each month. One common debt reduction strategy is to focus on paying down higher-interest rate debt, like credit card debt, first. Another strategy is to pay more on the debts with the highest balances first. In either case, when you begin paying off your debts, you'll free up more money to put towards your savings goals.
Save for the future
Even as you work toward reducing your debt, you can continue to save for long-term goals. Especially if you're starting out in your career, now is the time to get in the habit of saving for retirement.
When it comes to saving, don't worry if you have to start small. Any amount is better than nothing at all. As you start paying your debts down and off, you can redirect that money towards your savings.
Finding your balance
Balancing reducing debt and saving for the future can be tricky, but it's well worth the effort. If you're ready to get ahead of debt while saving better for the future, Wright-Patt Credit Union (WPCU) is here to help. Together, we'll explore which debt reduction strategy might work for you and what tools are available to help. Stop by your local Member Center to learn more and talk to a Financial Coach today.