It can be difficult to think about saving when there’s hardly anything extra in your budget, or you’re living paycheck to paycheck. However, saving is possible, even on the tightest of budgets. One of the best ways to save is by paying off debt. Repaying debt in a timely manner saves you money on interest and late fees.
According to Experian’s 2019 Consumer Debt Study, the average American carries $90,460 in personal debt. This includes credit cards, personal loans, mortgages, and student debt. While a mortgage is often considered “good debt” since it leads to home ownership, which is an asset, the others are liabilities that can cost you a lot of money in interest if not paid off quickly.
In recent studies, many Americans said they could not cover a $400 emergency expense without the use of credit cards or loans. This means anything from needing new tires to a short hospital stay would put millions of families in debt. On average, Americans carry $6,194 in credit card debt. This, combined with student loans and a mortgage, can make paying off debt seem overwhelming.
Tackle Credit Card Debt First
Although difficult, repaying large sums of debt is not impossible. It just takes discipline and a commitment to achieving financial freedom. Paying off credit cards is the best place to start because they typically have the highest interest rates of any of your debts. Always pay on time to avoid late fees, and, if possible, pay more than the minimum required payment on whatever card has the highest interest rate or the lowest balance. This will help you pay off your credit cards much sooner and save you money. The money you begin saving can now go toward an emergency fund, so you’re better prepared to cover those unexpected $400 expenses.
Limit Credit Card Usage
It is also important to stop, or at least, limit your credit card usage when trying to pay off debt. You have to stop looking at credit cards as a way to pay for wants that you really can’t afford. If you can’t pay off that new dress or that weekend hotel stay you charged on your credit card before interest is added to your bill, then you probably need to hold off on those types of purchases. Once your money is no longer going to credit card bills and other debts, you will be able to pay for these luxuries with savings. A vacation is a lot more enjoyable when you know you’re not going into debt for it.
By freeing yourself from debt, you can use these savings not just for emergencies and fun, but also for building wealth for yourself. You could save for a home, make investments, or start your own business.
Anything is possible when you don’t have debt holding you back. Commit to saving and building wealth today by paying off your debt.