You want to feel confident about your financial situation. So what happens when you’re striving for two seemingly different financial goals, like saving money for a major milestone while paying down student loan debt?
Figuring out how to save money while paying off debt isn’t easy, but it is doable. Whether you’re saving for an upcoming wedding, a new car, or moving to a new state, you can still pay down on your debts.
How to save money while paying off debt
Here are some simple strategies to help you balance saving for big goals, and even retirement, while still prioritizing paying off student loan debt.
1. Leverage your savings potential
First, find out what you can do to leverage your savings potential right now. For instance, does your job offer a 401(k) match or any employer-sponsored programs that can save you money?
Emilie Burke of personal finance blog Burke Does said that she only saves for retirement up the amount that her employer matches the contribution, which is 4 percent of her gross income.
“I put that much into a 401(k) because it immediately has a 100% growth,” she explained. “Otherwise, I focus completely on paying down debt with everything else.”
Not only will this strategy allow you to take advantage of extra money in your retirement account, but you could be eligible for a credit on your tax return.
Aside from this, can you get a discount on your bills or loans for enrolling in automatic payments? With federal student loans, for example, you can sign up for automatic payments and receive a small discount on the monthly interest applied to your account.
Simply put, leveraging your savings opportunities is an easy way to maximize your savings right away. Any amount of employer-matching or discount savings you can participate in is more money in your bank over the long-term.
2. Make high-interest debts a priority
High interest loans and credit cards can thwart your long-term goals, ultimately keeping you in debt for many years. It’s nearly impossible to get ahead financially when you’re paying 15-25% interest rates.
Make a plan to pay off your highest interest rate debts first. Then see if you can refinance or consolidate any of your debts into low, or 0% interest loans. Most credit card balance transfer offers, for example, come with an introductory 0% interest rate for anywhere from 12-18 months.
Once you’ve created a new debt payoff plan, stick to it. Within a year or two, you can have your high-interest debts completely paid off.
3. Categorize your goals by timeframe
Make competing financial goals easier to reach by categorizing them into how long it will take to reach them.
For instance, saving for a down payment on a new home will take a lot longer than trying to save up for a family vacation next year. Organize your goals based on their importance to you as well as how long each one takes to achieve.
One way I do this is by opening multiple savings accounts then setting up small automatic payments from my regular checking account into each savings account on a weekly basis. I may only be able to save $10-25 each week, but I know I’m making progress on each goal, and if I stick with it I’ll be able to realize it one day soon.
4. Pay more than the minimum
While you’re saving up for big goals, don’t forget to make paying off your student loans a high priority, too. As much as possible, pay more than the minimum balance due. Even if it’s only $20 or $50, a little extra each month can really add up over time and help you make you reach your goals faster.
If you find that it’s difficult to pay more than the minimum, try making your payments more often, such as two times a month instead of once a month. Not only will this help you get out of debt faster, you’ll be able to save money on interest fees by shortening the repayment period.
5. Use your peers for motivation
If you’re the type of person who gets motivated by competitions and community involvement, don’t be afraid to lean on your friends for support. This will make the topic of money a lot easier to tackle and your friends and family can help keep you on track with regular check-ins.
Turn your small milestones into a game with a fun prize or reward system at the end. Work with your peers and compete with your friends to see how much progress you can make on your goals. It’s all too easy to get discouraged and feel hopeless if you try and reach your goals alone.
6. Increase your cash flow
Without a doubt, one of the best strategies to use when working towards multiple financial goals is to earn more money. There’s only so much you can do when cutting back your living expenses until you just need to increase your cash flow.
Take on a few hours of overtime at work, or start a side business on the weekends. In this age of technology, there are endless ways you can earn extra money to put towards specific goals. You could even use one specific source of income to pay down debts while setting aside another income stream for big savings goals.
Another way to increase your cash flow is to talk to your tax professional about adjusting your tax withholding at your day job. You’ll have less money taken out of your paycheck which means more money in your bank account.
7. Invest in a Roth IRA
Rebecca Stapler of Stapler Confessions and her husband started their careers with over $200,000 in student loan debt and about $4,000 in assets. This past month, they were finally able to reach a positive net worth. One of the main keys she attributes to this is investing in a Roth IRA.
In her experience, it’s a great way to hedge your bets for the future. “As long as a Roth IRA makes financial sense at the time, max out those contributions and, if you need a down payment for home, you can withdraw those contributions tax-free – as long as you wait five years,” she explained.
It’s true. If it’s your first home, you can withdraw up to $10,000 of the earnings in a Roth IRA without paying an early withdrawal penalty.
“That’s what we did, and the end result is that we earned more than $10,000 in our Roth IRA while we waited for the right time to buy a house,” said Stapler. “When we finally decided it was time to buy, we had a 10 percent down payment by withdrawing our contributions,” she explained.
Take time to prioritize what goals are most important for your future – whether that’s paying off student loan debt or buying a new home – and use these tips as a guide to balance the financial decisions you make going forward