Why You Should Save Money Even While in Debt
Trying to get out of debt can be challenging, especially if you have credit card debt. Even as you pay down credit card debt, it can seem like an uphill battle due to the interest that continues to accrue every month. Because of this, the last thing you're probably thinking about is putting aside money. Instead, you're likely focusing on putting any money you have left over into paying down your debt. This would seem like the logical choice -- but you might want to reconsider.
There are two main instances where you should consider setting some money aside even if you're trying to pay off your debts. The first is if you have a retirement account through your job and your employer is matching contributions, then you should try to contribute money to your retirement account every month. Even small contributions to your retirement plan can grow significantly as a result of compound interest. If you’re not putting money towards your retirement plan, it means that your employer won't be matching contributions because you’ll have none. In doing so, you're basically turning away free money for your future.
Secondly, you never know when a financial emergency might come up. You should have emergency savings tucked away in case of such an event. For example, a medical emergency or car repair costs. If you don't have the money saved up to pay for such emergency costs, guess what's going to happen? You're going to end up putting the costs on your credit card, thereby putting you further into debt.
How to Save Money Even When In Debt
While it's important to save money, especially in the case of a financial emergency, you won't want to forego paying down your debts just so that you can build up your savings. You'll want to do both at the same time - especially if you have large debts. This can be a bit challenging. You'll need to budget for this -- for example, you'll want to make sure that you make your minimum payments on all of your debts at the very least.
To figure out how much to put towards savings, put a goal in place. It's typically recommended that you have at least three to six months worth of expenses in a savings account. This can help you get through financially difficult times in the event that you lose your job. This may seem unreachable, but you’d be surprised at how quickly a little bit starts to add up. Have a goal, but be realistic and give yourself the time it will take to reach it. If you’re heading in the right direction, you’re doing great.
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By saving money while also paying down your debts, you can help prevent a financial emergency from erasing all of the hard work you put into paying down your debt. Look at your financial situation and determine how much you can afford to put away every month in savings while still paying down your debts.
For more professional guidance regarding debt management and how to save money even when in debt, contact us to schedule an appointment today.