How to Start Saving When You Have Too Much Debt

How to Start Saving When You Have Too Much Debt

Written by Lisa Rennie
Fact-checked by Caitlin Wood
Last Updated February 3, 2021

It’s nearly impossible to meet someone who doesn’t have some amount of debt, no matter how much or how little. In fact, the average Canadian consumer has almost $27,000 in debt, not including any mortgage debt they might have.

You likely have plenty of debt to pay down of your own, which you should be dedicated to doing every month. But what about actually saving money? It’s always wise to have a financial cushion to fall back on in case an unexpected expense creeps up, which is almost inevitable. You might want to save up for retirement, for college tuition for your kids when they get older, or for that big family vacation, you’ve been longing to take.

The thing is, how can you save money when you’re in debt? With all that money that you still owe – plus interest – how can you possibly set some money aside to be put towards something other than your monthly bills?

Establish a Budget

You wouldn’t build a house without a set of plans to direct the contractors. In much the same way, saving up some money for a rainy day requires some level of planning. As such, you need to put a budget in place. It’s essential to have a clear and accurate understanding of exactly what your finances are like. More specifically, you need to know how much money you are spending versus how much you are bringing in.

The more detailed you can be, the better. That way, you can identify any areas that require close monitoring. If there are any areas where you spot some overspending, you can make the necessary adjustments to help you free up money that could be put towards your savings. You can use budgeting apps like Mint and YNAB to help you create your saving goals and better track your spendings.

Budget Breakdown

Crunch the Numbers

When it comes to saving money despite lingering debt, a little arithmetic is in order. Add up absolutely everything that would be required to meet your debt obligations, and make sure that all of these bills are paid in full and on time at the end of each billing cycle.

This list of payments should take precedence, as you don’t want to miss payments and get slapped with late fees, which will just add to your overall debt. Whittling down your debt will also get you closer to financial freedom, at which point you can dedicate more funds towards savings.

Cut Down on Your Expenditures

If using your credit card is causing you to rack up tons of debt, then stop using it. Instead, put it away and start using cash instead. It’s a lot harder to part with physical cash than to simply swipe your credit card when you’re at the cash register. Until your debt is under control and you’ve been able to free up enough money to save a little each month, keep your credit card at home and use cash instead.

Check out what you can do if you have maxed out credit cards.

If overspending is a problem for you, then that’s an area of your financial life that needs some adjusting. In order to free up some money to be put aside, you will need to make some sacrifices. Rather than going out for dinner every weekend, going on spending sprees at the mall, or splurging on expensive lattes every morning, consider cutting back on these expenditures. It might not be fun and maybe a bit of a sacrifice, but it will be well worth the effort once you see the pile of money saved at the end of the day.

Cost of Morning Coffee

Automate Your Savings

How much are you looking to save every month? Ten percent of your paychecks? One hundred dollars per month? Whether it’s a percentage or flat dollar amount, make that decision from the get-go and stick to putting that amount aside every month. Just make sure you are completely realistic and that the number is doable.

Consider automating your savings so you aren’t worried about using more than you can afford. By automating your savings, you know that the amount in your account can all be used towards your debts and bills. You can call your payroll department at work and ask them if you can have a certain amount of your pay immediately transferred or deposited into an account separate from your checking account.

Or, set up your online banking to have your predetermined amount transferred into your savings account every month. This will make the process much easier. Not only will you not be faced with temptation, but you’ll also take one more task off your plate.

Debt Repayment Strategies

There are several debt repayment strategies that have been tried and tested, so consider implementing any one of them to pay down your debt. Here are a couple that you might want to try:

Snowball Method – This strategy involves paying off the debt with the smallest outstanding balance first then making minimum payments on all other debts so you’re not late paying them. Continue focusing on your smallest debt until it’s paid off, then put the money you were using to pay off the first debt towards the next smallest debt.

Continue this pattern until all of your debts are paid off. This method is attractive because it will take a shorter amount of time to pay off a smaller debt than a larger one, and once you see your efforts pay off, you’ll be more motivated to stay on track to pay off all your debt.

Learn how to conquer your high interest debt.

Avalanche Method – Rather than focusing on the smallest debt, this method involves paying down the debt with the highest interest rate first. Considering the fact that a higher rate makes debt more expensive, it would make sense to get rid of that debt first in order to avoid spending all of your money on interest. Once you’ve paid that debt off, work on the next highest interest rate debt, and so on until you’re debt free.

Final Thoughts

Saving money and paying down your debt is best done with a solid plan in place. That said, plan is only as good as the action behind it. If you don’t put your plan to good use and are not responsible with your finances, you likely won’t make much of a difference to your debt load or your savings account. Make sure you’re self-disciplined enough to come up with a good plan and stick to it until you’ve reached your goals.

It’s important to remember that there are times when budgeting and planning aren’t enough to get you out of debt. Sometimes more severe actions must be taken to get your debt under control. Consider speaking to a credit counsellor, they will be better able to evaluate your debt and finances and offer you a solution that best meets your needs.

Rating of 5/5 based on 2 votes.

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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