Saving Money While Paying Off Debt

Welcome back to Simple Savings Sunday.   In this series, I show you a difference saving technique each week.  My goal is to inspire those looking for ways to save, along with showing you how it easy it can be.  Saving really doesn’t have to be that difficult. If you find yourself struggling to save, then you are living beyond your means. I don’t mean to be an ass with this statement, but sometimes honesty can hurt.  I know, I have been there too.  With regards to my honesty, I am going to provide another little truth.  You CAN save while paying off debt.  It’s true.

Save Money While Paying Off Debt

There is a big debate out there whether it is better to pay down debt or save for retirement.  Most people come down on one side or the other.  Some will say that if you have debt, then you need to focus on paying it off.  Others will say that depending on your debt, you should save for retirement.  I was reading an article from one of my blogger friends.  She was asking the question about paying off debt or saving for retirement.  What she indicated in the article is what I believe.

I don’t like to conform to many things.  Thinking outside the box is one of my favorite things to do.  Why should you always follow what everyone tells you?  For this reason, I think it is very much possible to save money while paying off debt.  It shouldn’t matter if you are saving for retirement or an emergency fund.  Saving money is saving money.

My Method for Saving

I have written a few times before about how I paid off my credit card debt.  I have also written about how I paid off my debt and saved money.  Just because someone says that you should focus on one thing over another doesn’t make it right for everyone.  Paying off debt is extremely important, but so is saving money.  Most people don’t have enough savings, so why not focus on increasing what you have squandered away?

My money saving method was simple.  You take whatever money you are going to pay toward your debt, above the minimum payments of course, and then split it up based on an allocation.  My allocation method was similar to how retirement investments are done.  When you first start out, you pay more toward debt and then some toward savings.  Lets say 90% toward debt and 10% toward saving.  As the time goes by and you have paid off more debt, you slowly start to lower the debt allocation and increase the savings allocation.  In my final year of debt repayment, I was paying something like 30% toward debt and 70% toward savings.  Why would I do this?

The answer to that is simple.  Paying off debt should be two-fold. You not only need to free yourself from debt’s shackles, but you also need to change your mentality.  You get into debt because you have a spending mentality, but that needs to change.  You need to learn how to save and enjoy doing it.  When I used my method, I learned how to save by the end. I was saving money and I was watching my bank account grow.  It was a great feeling.  My spending mentality was getting wiped out and changing to a saving mentality. It was awesome.  That is the whole point of my method.  If you don’t change your mentality, then you will get out of debt and go right back in.  I have dedicated an entire page to my debt/saving method allocation, so check it out if you are needed some more guidance.

One thing you should always remember, paying off debt and saving money is entirely personal.  You have to pick what best works for you.  I just wanted to provide another method for those that are looking for options.  You can fight debt and grow wealth, but it just takes time.

As a little bonus to those looking to save money while paying off debt, take a look at how the free app, Digit, has changed the way I save money. It allows me to save money I didn’t even know I could. Trust me, I wish I had this service when I was deep in debt. It would have propelled my savings mentality. If you just want to check them out, head over to their site.

I’ve Been Cable Free for 5 Years and Still Watch TV

While in debt, I cut cable and haven’t looked back. It’s easier than you think especially with new services out on the market. One of my favorites is Sling TV, which allows you to watch live TV on the internet. It’s awesome. Check out my Sling TV review.

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  1. Hey Grayson,

    I am in your camp, especially on these two points: 1) create a plan that works for you and 2) the mental shift from spender to saver is critical. While I was in my “dark period,” I automatically had 10% of my gross put into my 401k. Then I used the remainder to get out of debt, live and save for what I call “Future Capital Expenses.” Those are the expenses that come up on a regular basis or problems we know we’ll have to address in the future (think auto insurance and replacing a car or a roof).

    That process worked great for me and now I’m debt free (including mortgage free) and have a tidy sum stashed for retirement.

    Making a mental shift from spender to saver took time and tweaks to my process over the years. There’s something so magical about seeing your debt go down and your net worth go up!

    Thanks for the great article!

    1. Nice work Ree. I think it is so crucial to change the mentality. If you don’t, what are you really doing? You came up with a plan that worked for you and came out the other end with the right mentality. Great work Ree!

  2. Awesome Sunday Savings Tip Grayson! Right now I am averaging about 10% a month towards my savings and 90% towards debt repayment. I think those numbers will stay that way for awhile. What I am working on right now though is making that 10% “smarter.” Investing is confusing but I want to soak as much knowledge in as possible! I think I may be coming back to Debt Round Up a lot to help me grow wealth. 😉

    1. Sounds like you have a plan that works for you Wendy. Congrats on saving and paying down debt. Keep you eye open as I have something in the works that will be dedicated to growing your wealth.

  3. This is an excellent point you make Grayson, “if you don’t change your mentality then you will get out of debt and go right back in”. This is true in paying off debt and in many other aspects of life. Thanks for the shout out!

  4. The thing I love about your method here Grayson is that you are learning to save WHILE you pay off debt. To put it in a separate step after the debt is gone would be a huge waste of time. And I would add that even if you’re saving a teeny bit each payday, it’s better than nothing. If you can only put five bucks away each pay period, then do it, just don’t put away nothing.

  5. One of my goals for this year is to be 100% debt free. Saving while paying off debt is what I started doing earlier this year. It works for me and I’m planning to continue doing it throughout the year. It just takes effort because what I decided to do is to cut off my spending habits. I will wisely spend on something, that’s what I am planning to do. I can see you did it and so am I. I am confident that before the year ends, I will be 100% debt free.

    1. Glad to hear that it worked for you. I think it is important to come up with a plan that works best for you situation. You are right though, it is hard to pay debt and save, but it is possible.

  6. We didn’t save money while we were paying off debt, and if I had to go back and do it over again I still wouldn’t have saved money – I would have gotten my $1000 Emergency funded…and then funneled all the rest of my funds towards the debt.

    1. You still got the best take away. Do what works best for you. My key point was to tell people that it is actually possible to do both. I have a story coming up that will show how quickly a $1000 emergency fund will go.

  7. I agree with you that it’s important to tackle both but how much to each is based on each individual. I do think it’s important to tackle anything with high interest though. Glad you were able to get out of debt AND save money!

    1. Yes, it is very individual. That is why I created the allocation system. You can come up with any percentage that works for you. It can be changed at any point in time.

  8. I agree that some savings is a must. An emergency fund of some sort should be required. I personally believe a 401k contribution that is equal to your company match is a savings must. After that having a plan that you stick to is most important. 90% debt repayment or less, just make sure you have that plan to finish free from debt.

    1. I am with you there Steve. So many forget about the saving component and then don’t learn how to do it. It just leads to a vicious cycle of paying off debt and getting right back in.

  9. It’s great to see that you advocate saving while working to pay down debt. Most people ignore the saving part then have a big and unexpected expense which caused them to go back into debt and start the vicious cycle all over again.

  10. I have heard and wrestled with the same question. When we were paying down debt we decided not to save but we knew from the exact start that to pay down my wife’s debt it would take us between 12-14 months. In our situation we decided to pass on saving so we can pay down our debt. During this time though we still contributed the minimum amounts to our 401ks that our company would match. Can’t pass up on free money right? =)

    1. I am glad that you did what was best for you. That is the key to my whole article. No matter what you do, make sure you understand what you are doing and why. I really wanted to share that it is possible to save and pay down debt. If you need a mentality change, then creating a method to save will really help.