As Americans, we are uniquely familiar with debt. As of 2021, the average American now owes an astonishing $52,940, more than any other nationality in the world by far. College loans, healthcare bills, and easy access to credit cards are all major contributing factors, with the result being that a significant number of Americans will die in debt.
However, this outcome is not inevitable for anyone. If you want to know how to save money and pay off debt, all you need is the right money know-how. Read this handy explainer to learn exactly how to pay off debt and save money at the same time.
1. Eliminate Your Interest
The first step to financial freedom is eliminating or reducing your interest payments wherever possible. As this guide on how to build wealth with infinite banking explains, interest payments can consume around 10% of the lifetime income of the average person.
It is essential to pay down debts with higher interest and to immediately close off any option for accruing high-interest debt. Cut up your credit cards, avoid payday loans like the plague, and do not opt for buying items on credit or through buy-now-pay-later schemes, as these will always cost you more.
2. Consolidate Your Debts
If you want to know how to pay off debt, the best option is often to consolidate. Granted, this is not the best option for everyone. However, if you have a large variety of different high-interest debts and loans that you are struggling to keep track of, this is your best option.
Look at debt consolidation services or even government programs that might help, such as certain forms of bankruptcy. Consolidating all of your debts will often result in lower monthly repayments and give you the chance to get your head above water.
3. Prioritize Your Debts
You will never learn how to save money if you don’t learn how to prioritize your outgoings. As mentioned, your high-interest debts should be paid down as quickly as possible and with severe urgency. This is the only way you can begin to get back on track.
After this, focus next on private student loans and medical debt. Once this is paid off, your next priority should be government student loans, car loans, and outstanding mortgage debt. This prioritization will make it easier to get back into the black.
4. Set Hard Limits
Next up, it’s time to deal with your spending. There are too many spending and saving systems to count, with the 50/30/20 rule being the most popular by far. Once you have formulated a realistic savings plan, it’s time to make sure you stick to it. Set up a direct debt that automatically transfers a portion of your income to a savings account, ideally one that you cannot access unless you really need to. Get serious about your 401K. Delete your online shopping accounts. These small steps can make a huge difference.
How to Save Money and Pay Off Debt Today
Now that you know how to save money and pay off debt, it’s time to get started. To save your way to financial freedom, we have got you covered. Make sure to check out our expert finance guides to learn how to make your money work for you in 2021.