Getting out of debt and saving money are two important financial ideas that, really, go hand in hand. The fact of the matter is that, just by getting out of debt, you are already saving money. You are saving money in interest and fees, at the very least. Having said that, it is important that, in the process of getting out of debt, that you still make a point of saving money somewhere else.

The first thing you need to think about in terms of getting out of debt and saving money is to know how much it is that you have each month to spend on debt reduction and savings. Once you know how much that is, then you need to find out how much it is that you owe in debt, in terms of monthly obligations. What you will do is to rank your debt from highest to lowest, in terms of the interest rates on the debt. For example, a credit card with a 19% interest rate would rank higher than a 6% mortgage. In turn, that 6% mortgage would rank higher than a 4% student loan.

Once you know how much extra money you have, you should set aside half of it immediately for savings. Having money in savings will, among other things, help you from accruing extra debt in the long run. In addition, saving money will help you to earn some interest on your extra money, even if it is just a little bit. Then, you will take the other half of your extra money and use it towards getting out of debt. What you will do is to send that extra money to the debtor that has the highest interest rate, every month. Eventually, when that debt is paid off, you will want to pay off the next highest interest rate debt, and so on.

You may wish, after you have gotten out of all of your other debt and begun saving money, to consider leaving those lower-interest debts alone, such as student loans and mortgages, and paying just the minimum payments. In some cases, this may be the thing to do. You may wish to speak with a financial planner in that specific regard.

Posted in Home Budget

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