How to Save Money While Paying Off Debt

Paying off debt while simultaneously saving money can feel like walking a tightrope—balancing the need to eliminate financial obligations with the desire to build a financial cushion. However, it’s not only possible but essential for long-term financial health. Here’s a practical guide to help you navigate the challenge of paying off debt while saving money.
1. Prioritize Your Debt Payments

To make headway on both your debt and savings, start by understanding your debt and how it affects your financial situation. Consider the following steps:
- List all your debts: Write down the total amounts, interest rates, and minimum monthly payments for each debt.
- Focus on high-interest debt first: Credit card debt, payday loans, or other high-interest loans should be prioritized, as they accumulate the most interest. The sooner you pay them off, the less you’ll spend on interest.
- Consider the debt snowball method: If staying motivated is tough, the debt snowball method may work for you. Pay off the smallest debt first, then apply the freed-up funds to the next smallest, and so on. This method can give you a sense of accomplishment that keeps you motivated.
2. Create a Budget
A realistic budget is crucial when you’re trying to balance saving and paying off debt. Start by:
- Tracking your spending: Use a budgeting app or spreadsheet to track where your money is going each month. Identifying areas where you can cut back will free up extra funds for saving and paying down debt.
- Setting realistic savings goals: Even if you can only afford to save a small amount each month, set a goal. Treat your savings as a priority, just like paying off debt. A good rule of thumb is to put aside at least 10% of your income for savings.
- Cutting non-essential expenses: Review your spending and see where you can reduce costs, such as dining out less, canceling subscriptions you don’t need, or shopping smarter.
3. Automate Your Payments

One of the easiest ways to stay on track with both saving and paying off debt is automation:
- Automate debt payments: Set up automatic payments for at least the minimum amount due on your debt each month. This ensures you don’t miss any payments and incur late fees, which would delay your progress.
- Automate savings: Many financial institutions offer automatic transfers from checking accounts to savings accounts. You can set up a fixed monthly transfer to your savings so you’re consistently putting money away.
4. Refinance or Consolidate Debt
If you have multiple high-interest loans or credit card balances, it may be worth looking into refinancing or consolidating them. Refinancing means taking out a new loan with better terms (such as a lower interest rate) to pay off the existing debts. Consolidating combines several debts into a single loan, which may lower your overall interest rate and reduce the number of payments you need to manage.
Before choosing this option, make sure to compare interest rates, fees, and terms to ensure you’re making a financially sound decision.
5. Increase Your Income
While cutting expenses can help you save money, increasing your income gives you more flexibility in paying off debt and saving simultaneously:
- Side jobs or freelance work: Consider taking up a part-time job, freelancing, or selling unused items around the house.
- Monetize a hobby: If you have a skill or hobby, such as photography, writing, or crafting, use it to bring in additional income.
- Request a raise or promotion: If you’ve been performing well at your job, it might be time to ask for a raise. Use the extra income to either save or accelerate your debt repayment.
6. Cut Interest Payments with Balance Transfers

For credit card debt, balance transfer offers can be a lifesaver. These offers typically allow you to move your debt to a new credit card with a 0% introductory APR for a set period (usually 12-18 months). This can provide you with a grace period to pay down your debt without accumulating interest. Be mindful of balance transfer fees and ensure you can pay off the balance before the 0% period ends to avoid higher interest rates.
7. Take Advantage of Employer Benefits
Some employers offer financial wellness benefits, such as retirement savings accounts (401(k)) with employer matching, or student loan repayment assistance. Contribute enough to get the employer match, as this is essentially free money that boosts your savings while you’re tackling your debt.
8. Set Realistic Goals
Lastly, it’s important to set clear, achievable financial goals. Whether your goal is to pay off a certain amount of debt in six months or save for an emergency fund while tackling student loans, having a clear roadmap keeps you focused and on track. Break your goals into smaller, actionable steps and celebrate milestones along the way.
Conclusion
Paying off debt while saving money requires discipline and strategic planning. By prioritizing high-interest debt, creating a budget, automating payments, and finding ways to boost your income, you can reduce your debt and increase your savings simultaneously. The key is balance: stay focused on your debt, but don’t neglect your future financial stability by neglecting to save. With the right approach, you’ll be able to achieve both goals and set yourself up for long-term financial success.