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 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. She's used a variety of financial tools over the years and is currently growing her money with Wealthsimple, while stashing some capital in a liquid high-interest savings account so that she always has a financial cushion to fall back on. She's also been avidly using her Aeroplan TD credit card to collect as many Aeroplan points as possible to put towards her travels!

Click on the star to rate it!

How useful was this post?

Research & Compare

Canada's Loan Comparison Platform

Largest Lender Network In Canada

Save time and money with Loans Canada. Research and compare lenders before you apply. Share your experiences with Canada's top lenders.

Make Smarter Borrowing Decisions

Whether you have good credit or poor credit, building financial awareness is the best way to save. Find tips, guides and tools to make better financial decisions.

Save With Loans Canada

Special Offers

50 Free Trades Offer

50 Free Trades Offer
Ends August 31st, 2022

Almost $500 in commission-free trades. Code “50TRADESFREE”. Conditions apply.

View Offer
Borrow Today, Don’t Pay Till July

Borrow Today, Don’t Pay Till July
Limited Time

Borrow $500-$50,000 from Fairstone by May 31 and don’t pay until July.

View Offer
Build Credit With Refresh

Build Credit With Refresh

Build credit while spending money with the Refresh Financial VISA card.

View Offer
Build Credit For $7/Month

Build Credit For $7/Month

With KOHO’s prepaid card you can build a better credit score for just $7/month.

View Offer
Industry Spotlight

What's happening with Canada's credit industry?

addy ⎯ Making Real Estate Accessible To All Canadians

addy ⎯ Making Real Estate Accessible To All Canadians

Check out our interview with addy; a platform that allows Canadians to invest in different properties across Canada with as little as $1.

Read Post
Find The Best Rate
In Your Region
Best Personal Loan Provider by Greedy Rates

Confidential & risk-free

All consultations and conversations with Loans Canada and its partners are confidential and risk-free. Speak with a trusted specialist today and see how we can help you achieve your financial goals faster. Loans Canada and its partners will never ask you for an upfront fee, deposit or insurance payments on a loan. Loans Canada is not a mortgage broker and does not arrange mortgage loans or any other type of financial service.

When you apply for a Loans Canada service, our website simply refers your request to qualified third party providers who can assist you with your search. Loans Canada may receive compensation from the offers shown on its website.

Only provide your information to trusted sources and be aware of online phishing scams and the risks associated with them, including identity theft and financial loss. Nothing on this website constitutes professional and/or financial advice.

Your data is protected and your connection is encrypted.

Loans Canada Services Are 100% Free. Disclaimer

Keep Track Of Your Credit Score

Subscribe with Credit Verify to monitor your credit rating and get your free credit score.