Who doesn’t want to learn how to save money and pay off debt at the same time, right? I know I do.
We all want to calculate the day we will be debt free and have money in our savings account for any unexpected emergencies – rather than live paycheck to paycheck.
But saving money and paying bills can be a burden for those in financial hardship or who have loans and are just trying to make ends meet.
You do have options to save money and pay off debt. One option we’ll look at involves using your existing savings account to earn extra money, which takes a time to earn interest.
Obvious ways to earn a few extra bucks
You do not have to sacrifice your saving and debt reduction goals.
Obvious examples to sock away extra money include: A second job, occasional side work, sell your unused belongings, or work overtime at your current job.
Even with establishing a budget to manage your spending could be enough to create room for extra disposable income.
But why not leverage your current money in a savings account to generate a little extra cash to stock away for bills?
Save money earning interest
One way to save money while paying down debt is deciding which type of account that you want to put your savings in.
There are several different types of savings account available: regular bank savings account, money market accounts, and certificate of deposit (CD).
Each one has their own benefits and downfalls.
- Savings account
First, a regular savings account is easily accessible with little to no consequences for withdrawing money.
On average, there is no minimum balance requirement or annual fee, which makes it appealing.
However, the interest rate is typically on the low side, with an average around 0.1%, which is pretty tiny.
An interest rate that low will not give you a high return on your money.
- Money market account
The second type is a money market account. The value of a money market is that they are usually risk free and offer a higher interest rate, which means the ability to make a higher return on your savings balance.
The bad about a money market account: You will typically have to have a higher amount to start and may be required to keep a minimum balance.
In addition you may have to pay a fee for withdrawing money, unless you get an account that allows for check writing.
However, even the majority of money market accounts that have check writing capabilities have limited the number of checks that can be written.
- CD (Certificate of deposit)
Finally, a certificate of deposit requires that you leave your money in the account for a specific period of time, usually around one month to five years.
CDs offer a higher than average interest rate that is usually fixed over the time period.
Typically, the interest rate is dependent on the length you are willing to own the CD.
Example: the longer the time period means the higher the interest rate.
If you do need to tap into your savings then you will have to pay a hefty fee for withdrawing money before the maturity date.
Tips to save money and pay off debt at the same time
Once you decide which type of savings account works best for you, you could save a specific amount to deposit into that account.
Then leave the money in that account for it incur interest payments while you work on paying off your debt.
By letting your savings account be self-sufficient, then that could free up some disposable income to pay down debt.
For instance, let’s say that you save $5,000 and then place it into a 24-month CD that earns 1.05% interest.
At the end of the two years you will have $5,105.55.
That means that with no additional deposits into the savings account for two years you will increase your value by over $100.
For another example, let’s say your disposable monthly income equals $500.
Pretend that you were to take $400 of that income and apply it to paying off your debt, which is on top of the minimum monthly payments that you are already making. That would be a nice addition to paying down your bills.
Now let’s say that you take the remaining $100 and put it in normal savings account.
In over two years you could make a significant debt in paying down your debt and have a little over $2,400 in savings.
Many people are fully capable of paying off debt while saving money for a rainy day.
You just have to calculate which one is the bigger priority.
Once your priority is decided then you will be able to focus on achieving both goals.
You may be able to gain some side work to bring in extra income each month that could greatly impact your savings goal and paying off your debt.
Perhaps you are someone that could develop a monthly spending budget to find extra disposable income that could be used for both goals.
Saving money and paying off debt gives you the peace of mind knowing that you are building a safety cushion for you and your family.
However, sometimes you have to be honest with yourself and know if it really is feasible for you to pay off debt while saving money.
Some months it might be easier to put money towards both goals, and other months it may not make sense. During the later type months you will have to decide which goal is more important for you and only apply your extra disposable income to that one priority.
I hope this has provided you with some tips about how to save money and pay off debt at the same time.