America Saves Week 2021: Save by Reducing Debt
Its our final America Saves Week 2021 post, and this time we're talk about saving by reducing debt. You may be thinking, “How am I saving by making debt payments?” Great question! Read on for the answers.
Save Money in Interest Charges
Unless you are lucky enough to have 0% interest on all debts (and if so, WOW – that is amazing), you will spend money above and beyond the purchase price of the item(s), especially if it takes years to pay it off. Making a concerted effort to pay extra toward higher interest debts will help you save a LOT of money in the long run.
Avoid Late Fees
When you make on-time payments, you not only make headway in lowering your balances, you prevent getting late fees. While it may not seem like a big deal, late fees can be up to $39. That’s essentially another monthly payment you’re avoiding.
While we don’t know exactly how credit scores are calculated, we do know that having high balances or being close to the maximum credit limit affects scores negatively. Late payments will also hurt your score. That means that making on-time, ongoing payments will continue to improve your credit score over time. Accruing debt doesn’t usually happen overnight, and the same goes for your credit. It will take time to improve it. Just don’t stop working on it.
For many Americans, debt is a major contributor to their stress. The more debt you pay down, the less money you’ll spend on interest, and you’ll get to watch your balances decrease. In my case, when I saw that one of my student loans was under $2,000, that was a huge relief and it motivated me to work on paying that debt off faster. So remember that the next time you make your credit card or other debt payment, you are reducing stress (and your debt balance!) with every payment.
Save While Making Debt Payments
Some folks may not be able to make debt payments and set aside money in savings, but it’s something to work up to. What you don’t want is to pay off all your debt and then have nothing in savings. Why? Because you’re putting yourself in a situation where you may be forced to accrue debt again should an emergency arise. Therefore, when it’s realistic, start putting money into a separate savings account. The easiest way is to set up automatic deposits from your paycheck or even from your checking to savings when you get paid. That way you’re “paying yourself first.” And because it’s separate from your checking, you won’t be tempted to spend that money.
Now that you’ve heard about the benefits, paying off debt is clearly a good thing, right?! At the same time, it’s important to think about the future and how you’ll pay for an unexpected expense. Because you don’t want to have to accrue more debt right away and start the vicious cycle over again. So, do what you can to reduce debt balances and start building up savings as soon as you can.
If debt is holding you back from building up savings, taking that trip, or achieving other financial goals, LSS Financial Counseling can help. Our counselors will create a budget with you, along with a realistic plan to pay off your debt faster. Call us at 888.577.2227 to schedule your FREE phone session or create an account and submit your information online. Don’t let debt weigh you down -- take action today!
Author Elaina Johannessen is a Program Director with LSS Financial Counseling