Do you believe you have to pay off debt before you save or save before you pay off debt? Actually you can do both at the same time!
It’s good to create a balance between clearing your credit card balance and bringing your savings account back from the dead. Think about it: If you pay off your debt but have no savings for when an emergency (or a $200 concert by your favourite band) comes up, you’ll have to use your credit card. This starts the slow creep of debt all over again.
A more holistic approach is to tackle savings and debt at once. Here are five ways to start.
1. Focus on your highest interest rate
The credit card that matters most is the one that costs you the most. That means the one with the highest annual interest rate, with the highest balance. A four-figure debt may seem insurmountable now, but you can pay it off with a bit of discipline.
2. Pay more than the minimum monthly amount listed on your statement
This step goes hand in hand with Step 1. Your debt will linger like a bad cold if you pay just the minimum on your credit card balance each month. The way to get yourself over the initial hurdle is to be an overachiever. Even paying just $20 more than the minimum amount each month can help lower your interest charges.
3. Save $50 a week
It’s not a lot of money and you’d probably much rather spend it on something fun, but you’ll have $200 or more saved by month’s end. Plus, if you deposit the money in a high-interest savings account like the Commonwealth Bank’s NetBank Saver or Goal Saver, you’ll be earning extra interest on your money too. That’s enough to cover a minor car repair, a week of rent or a month’s worth of groceries if you need it. Something is better than nothing and it soon adds up.
4. Budget, budget, budget
You can still shop and go out, but be selective. Allocate a certain amount each week for essentials, then your social life and, finally, treats and stick to it!
5. Transfer before you see it
Automatically send a certain amount of your income over to your savings account each month. Over time, you won’t even miss this money, and it will be creating a little nest egg for you behind the scenes.
Tell us your tips for saving and paying off debt.