6 Simple Ways to Save Money While Paying Off Debt

It might seem impossible to save money while simultaneously reducing debt. The challenge becomes particularly daunting when high-interest debt repayments take up the majority of your income. However, building a financial cushion and keeping overall debt to a minimum is vital for maintaining financial stability. Fortunately, these six strategies can help you achieve your goals.

1. Create a detailed budget.

Managing your money begins with creating a detailed overview of your monthly income and expenses. A detailed budget tracks spending so you know exactly where your money is going. Seemingly small expenses, such as unused gym memberships, take-out, and daily coffee runs often total hundreds of dollars each month. Reducing or eliminating these non-essential costs allows you to pay off debt and save money without needing to increase your income.

2. Negotiate with service providers.

Review your bills for services like internet and utilities. Contact your providers to negotiate better rates or inquire about loyalty discounts and current promotions. Many companies are willing to temporarily lower their rates to retain customers. Additionally, compare competitors' offers to ensure you’re getting the best deal. For example, switching to a less expensive, but comparable insurance plan can result in significant savings over time.

3. Focus on high-interest debt.

It’s important that you understand which debts incur the highest interest charges. To save on total payments, focus extra money on high-interest loans or credit cards (often over 20% APR) while making minimum payments on lower-interest debts. This method maximizes your money’s impact because every extra dollar you pay toward high-interest debt saves you more in future interest than it would earn in a savings account.          

4. Consider debt consolidation.

Combining multiple debts into one loan with a lower interest rate can turn high-interest payments into a single manageable monthly payment. This strategy can save you hundreds in interest. A debt consolidation loan from your credit union could significantly lower your interest rate, allowing more of your monthly payment to reduce the principal instead of covering interest. 

Collect details about your debts, including balances and interest rates, and then discuss consolidation loans with your credit union to potentially reduce your overall rate and monthly payment.

5. Set up automatic savings transfers.

Automating your savings involves setting a fixed amount to be automatically transferred from checking to savings every payday, just like a regular monthly bill. Such electronic transfers, even small amounts like $25 or $50 per paycheck, create a hands-off method that helps you avoid spending money that could otherwise strengthen your financial safety net.

6. Increase your income. 

If you’d like to accelerate your plan to save more while reducing debt, consider working a side hustle or part-time job. Leverage your skills, hobbies, or passions to earn extra money. This might involve offering services like graphic design, photography, or even driving for rideshare companies. Even dedicating 5-10 hours each week to earning more money can result in significant extra income over time. 

Be sure to immediately apply the extra cash to highest-interest debts or your savings balance. Letting the money linger in your checking account or wallet increases the chances you’ll spend it on something else.

It is indeed possible to save money while paying down debt. Apply these practical strategies to achieve both goals at the same time, even on a tight budget.