How to save money while you’re paying off debt, according to financial experts

Look at you—you’re earning enough money that you feel somewhat financially comfortable, and now you want to plan out short-term and long-term financial goals. But whether you want to save up for a two-week vacation abroad or put money aside for a down payment on a home, you should feel really confident about taking control of your finances. There’s just one problem: You’re in a lot of debt (hello, student loans!). So now what? Do you allocate your hard-earned cash to pay down your debt? Or should you forgo your debt and save for a rainy day? The answer depends on your goals.

Melissa Leong, author of the award-winning finance guide, Happy Go Money, says, “Saving and paying down debt are both über important [because] they’re both [supposed to] help increase your net worth.” And while it’s a matter of personal choice whether you should do both or focus on one or the other, Leong claims, “You can absolutely live your life while saving and paying down debt. You just have to play the long game and have a plan.”

So what are the next steps? We talked to a handful of financial experts to help you figure out how to save for your financial goals while paying down that never-ending debt.

Should you be saving money in the first place when you have a lot of debt?

“It’s very important to always prioritize saving money [if you can]. This is because your savings is the foundation of financial health,” Danetha Doe, personal finance expert and creator of Money & Mimosas tells HelloGiggles. “The mistake I see a lot of people make is that they focus solely on paying off debt and find themselves in a situation where they need money for an unexpected expense. Since they don’t have savings, they have to resort back to using debt to cover the costs and dig a debt hole once again.”

Is all debt considered bad?

It’s important to know the specific kind of debt you have because, Qunnie Lin, Northwestern Mutual Financial Advisor, says, “You should [strive to] save some [your] money first, as not all debt is created equal and not all debt is bad debt.”

So what’s considered bad debt? It’s typically that pesky piece of plastic you have in your wallet, otherwise known as your credit card. “Because credit card debt will hurt your credit score and typically has the highest interest rates, it would be considered ‘bad debt,’” says Linn who recommends the first thing you should do is aim to pay off the debt with the highest annual percentage rate (aka APR).

According to Lin, good debt is considered to be mortgages and student loans, as these create equity and typically have interest rates that are relatively low. Plus, if you’re working for a non-profit organization, you may qualify for federal student loan forgiveness. If this is the case, there’s no point of paying off student loan debt aggressively, according to Lin.

Once your credit card debt is paid off, Lin recommends allocating “a portion of your money to start saving into a Roth IRA, Mutual fund, or a retirement plan, such as a 401k or 403B, while systematically paying off your student loan and/or mortgage debt.” Doing this will help your money grow while keeping the debt at bay.

How do you start saving money while eliminating your debt?

One of the first things you should do is take stock of the money you do have, says Leong. “How much money do you have to put towards your goals, whether that’s paying down debt or saving for a house? Look at your income versus your expenses; go through your bank statements from the last month or two to figure out your costs. If you have a surplus, that’s great,” she adds. She then suggests to thoughtfully determine how much you’re spending on your wants—dinner with friends and entertainment—because “you have to enjoy life—but you also want to identify hard figures to put toward your goals,” says Leong.

To do this, you want to decide how much you can save by setting up an automatic deduction of that amount into a separate account. Then list your debts, and identify the outstanding balance and the interest rate. Finally, you want to calculate an amount, which Leong calls your “Goodbye Debt Figure.” “[T]ackle the debts one at a time, pay the minimum payment for all of them but devote your Goodbye Debt Figure to the balance with the highest interest rate or the smallest balance, whichever motivates you more,” she says. “Once cleared, use the Goodbye Debt Figure and the money you were paying to service that debt towards the next debt balance.”

What are some easy ways to save money and free up more cash flow?

Lucky for you (and us), there are many ways you can save money. Lin recommends her clients stick to the “80/20 rule,” which is where you put 20% of your paycheck into savings and take 80% home with you to spend on bills or miscellaneous things you need. She also suggests pulling your savings the minute the direct deposit hits. “If you don’t see it, you don’t tend to spend it,” she says.

Leong calls this “making savings invisible.” “When my husband tells me to save him some chips, I put them aside as soon as I open the bag. Otherwise, I’ll just eat up every last crumb, and he’ll have none,” she says. “Siphon out money from your account on pay day or once a month to automatically go into a separate account. You won’t miss it so you won’t spend it.”

Granted, if you have credit card debt, Doe recommends calling your credit card providers and asking them to reduce your interest rate. Or, you can work on your side hustle if you have enough time. “[You can] freelance to earn extra money and use a percentage of it to pay down debt,” she says. “Pay more than the minimum, and if you can, double your monthly payments.”

The wellbeing of your finances comes from self-discipline. “It all starts with self-discipline—create a budget that works for you and make sure you stick with it,” Lin says. “However, reaching out to a professional, such as a financial advisor, can really help to walk you through the process of understanding your finances and keep you accountable for the first few years while you still work towards your goals. Once you get into the saving before spending habit, then you can think about what I like to call the fun stuff, such as investing, insurance, retirement planning, and real estate.”

How can you not feel discouraged during this process?

When you’re faced with a huge debt number and only see tiny developments with your finances, it’s easy to feel discouraged and wonder if you’ll ever move ahead with your financial goals. “The student loan debt system is broken and predatory,” says Doe. “It has robbed many folks of the hope they had for financial freedom and living the American Dream. If you feel that you can’t get ahead financially because of student loans, you’re not alone, and it is not your fault.”

When times get tough, Doe recommends staying focused on your dreams and surrounding yourself with positive stories about people who overcame financial stress by listening to podcasts or reading books. “Then, take action with your finances. Create a vision board of your goals and research what it will take to make it a reality,” says Does. While the vision board will keep you motivated when things feel impossible, you can also treat yourself along the way when you hit a milestone. “Although the road to financial freedom is much tougher for millennials, we’re resilient and the most educated generation,” she says.

While becoming financially stable is an amazing feeling in and out itself, it doesn’t define you who you are as a person. “Remember that money is just a tool. It’s not what makes life worth living. You can make the most of your life while taking steps to build wealth—just be patient and purposeful with your choices,” says Leong.

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