Sense & Centsibility Blog
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Paying down debt is saving

America Saves Week 2023, February 27–March 3, is an annual call to action for everyday Americans to commit to saving successfully.

LSS Financial Counseling is among the participating organizations that are encouraging everyone nationwide to set a goal for savings and make a plan to maintain or improve financial wellness.

This blog was written by America Saves for the America Saves Week initiative coordinated by the Consumer Federation of America (CFA).

Making the decision to pay down debt, particularly consumer debt, can create mixed emotions. You feel good about choosing to take concrete steps to pay off balances on credit cards, auto loans, student loans or other installment loans. On the other hand, you feel less positive about the amount of money you are directing into a savings account. Well, we’re here to show you how reducing debt is a form of saving, to give you strategies for the best way to do so that align with your personal situation, and to boost your financial confidence to keep you working toward your goals. 

As you pay off your debt, you are freeing up money, allowing you to direct those funds toward saving for something else that’s important to you — perhaps an emergency/opportunity fund, a vacation, home purchase or retirement. This money is freed up as you spend less on interest (and possibly late fees) and on lowering the debt balances themselves.  

If you have more than one debt you want to pay off — for example, an auto loan and a credit card balance — there are two main strategies to help you decide which debt to pay off first.  

  • The snowball method focuses on the balances of each loan. In this strategy, you make the minimum payment on all your loans except the one with the smallest balance. With this loan, you put as much money as you can toward it, and when it is paid off, you allocate that money to the next smallest balance. Your confidence gets a boost every time you see an account balance at zero.
  • The avalanche method focuses on the interest rates of each loan. In this strategy, you pay the minimum payment on all your loans except the one with the highest interest rate. You apply any remaining money you have for debt repayment to the highest interest rate loan. By paying off the debt with the highest interest rate first, you reduce the overall amount of interest you must pay. 

You choose which method is right for you and your situation.  

Once you are on a path to reducing your debt, reflect on the type of relationship you have with credit. Credit is a tool. When used wisely and with purpose, credit can help you achieve your financial goals and build financial confidence. Having a clear view on when and for what purpose you use credit is the foundation for a positive relationship. 

Sometimes we’re told that there are good types of debt (home mortgage) and bad types (credit cards). This type of categorization is based only on the financial aspect and not the personal situation you are dealing with. It might feel better to ask yourself if the type of debt you are taking on is a good decision for you or not. 

For example, when an emergency expense crops up, and it is large enough that it will deplete all or nearly all of your emergency savings, you might feel like you’re on shaky ground if another expense crops up before you can replenish your savings. As a result, you might weigh this option against using a combination of savings and credit, based on what feels best for you in the situation. 

Making purposeful choices about credit, something that you plan for financially and mentally, can help you build more financial confidence.  

LSS Financial Counseling is an NFCC-accredited organization. Our certified financial counselors provide trusted, nonjudgmental debt management support. They can explore options with you to eliminate your debt; assess whether a debt management plan is right for you; and work with you to create realistic budgets, improve your credit score and manage expenses. Call 888.577.2227 to schedule a phone, virtual or in-person appointment, or get your support online.