Saving while Getting out of Debt

Being buried in debt doesn’t mean all our earnings would have to be spent on paying off our debt. Even in this situation, we can still save money while getting out of debt. Some would say it’s almost impossible but even when you are bankrupt there is a way for you to save money while crawling out of this financial situation.

The key in getting out of debt while saving money is a robust action plan. This action plan doesn’t just tell you to divide your money so that you’ll have savings as well as money for paying off debt. To be specific the first thing you should do is to make a list of all the debts that you have and rank them according to the interest rate. That way you will know which debt that you should pay off first.

 It’s just common sense since the debt that has the highest interest rate will balloon faster than other debts. An option is consolidating your debt to a lower rate. Just remember that if your new rate is not lower than your previous rate by two points, it’s not worth it. Anything less than two points will basically be the same as the fees of transferring your loan is really high without mentioning the commissions of debt consolidators.

After you have created the list, create another list wherein you write down all the money that you have or will have in a month. Your savings and salary might be the only things that you’ll have right now but that’s ok. It’s a reminder that you might need additional source of income such as a part time job.

Another list should be created wherein you identify all the things that you will need in a month. The keyword here is need. Do not list anything that you want such as your dream gadget or a quick getaway vacation. This list is very important since this will be the only things you are allowed to spend on until you get out of your debt. Also write the expected price of these things or fee for the services and food.

Deduct the total amount of the things that you will need to your current savings and salary. The rest will be used to pay off your debt.

Some of us will say that our need is more than our salary and savings. Review your needs and reduce them to the bare essentials. You will be left with the things that will be enough for your life. This is very uncomfortable for some but this is just temporary since you will have to do that to get out of debt.

Once you have determined your monthly spending, the possible savings along with debt payment plan, it’s time for automation. Open up four saving accounts wherein one of them will the dedicated for your monthly bill, the other for your savings, the other one for debt payment and the last savings account for emergency use. This is very tiring but the idea of distributing money properly will get you out of your debt. This is entirely different from just simple budgeting because you already have pre-determined how much you have and how much you will be spending and who you will be paying first.

Saving money while getting out of debt is possible as long as you know how to distribute your money properly. It will require sacrifice but you will never find yourself hungry because you have already distributed all your money even for unforeseen events. It might take months or even years but when you get out of your debt, you now have the savings that will help you start over.