6 Strategies for Paying Down Debt and Building Savings

Can you shrink your debt and grow your savings at the same time? To celebrate Financial Literacy Month, we at Suffolk Credit Union are sharing six essential strategies that can make it possible. 

The Balancing Act

Managing both your debt and savings may seem challenging, but it’s all about finding the right balance for you. If you’re more focused on reducing debt, adjust your approach to put more cash toward paying down balances. If you’d rather build long-term savings, prioritize that in your allocations. The key is striking a balance that works for your financial goals and current financial picture. And the sooner you start, the more empowered you’ll be to reach other goals in the future. 

3 Strategies for Reducing Debt

If reducing debt is your priority, these approaches can help propel your progress: 

1. Build a budget. A budget will help you understand your income, expenses, and money trends. List your income and essential expenses (like rent, insurance, groceries, and utilities) from the past month, using a spreadsheet program, mobile app, or other digital tool––like Suffolk CU’s Personal Financial Management tool, which includes budgeting and expense tracking capabilities.  

   Then, subtract your necessary expenses from your income to determine your discretionary income. This is money that can be allocated toward miscellaneous expenses and needs, like debt repayment. Use a little of your discretionary money for fun, and use the rest for debt and savings. For example, say you have $350 a month in disposable income. You might use $50 of it for a dinner out, $200 of it to pay down high-interest debt, and the remaining $100 to build your emergency savings. 

2. Cut unnecessary spending. With a clear budget, you can identify areas where you might be able to cut costs. What if you limited yourself to two media streaming services? Have you used that gym membership in the past month? Reducing your spending even a little can free up more funds for paying down debt.  

3. Look for lower interest rates. Transfer high-interest credit card debt to a card that offers a low-interest promotional period for balance transfers. If you pay off the debt (and don’t add new charges) before the promotional period ends, you could save significantly on interest. If you have student loans, see if you can refinance or consolidate them with a lower interest rate, too.  

3 Strategies for Growing Savings

Is building savings for emergencies, retirement, or other goals more important to you than paying down debt? These tips can help you boost your financial reserves: 

1. Start with your emergency fund. Whether it’s a failing appliance or a car breakdown, unexpected expenses are a fact of life. Your emergency fund is the financial safety net that minimizes the impact of these surprise costs. Keep your fund in its own dedicated account, like Suffolk CU’s Save Your Way account. Make regular contributions to your emergency fund, even if you start with just $20 a week. Aim to save enough to cover three to six months’ worth of living expenses. 

2. Empower your retirement. Once your emergency fund is healthy and thriving, focus on building retirement savings. A sound rule of thumb is to contribute at least 15% of your annual pre-tax income to your retirement account each year, but you should work with a professional to create a custom retirement strategy. Take advantage of matching employer contributions to your 401(k) plan, if available, to avoid missing out on what’s essentially free money. If you don’t have an employer-sponsored plan, consider opening a traditional or Roth IRA. 

3. Expand your income. The side gig economy can be an effective way to earn extra cash to put toward savings, debt reduction, or both. You might drive for a ride-hailing company, sell crafts at your local farmers market or online, or take up dog walking on the weekends. Whatever you do, your budget will benefit from a steady, flexible income stream. 

Automate What You Can

Here’s a bonus tip: Look for ways to automate your debt payments and savings contributions. At Suffolk CU, our Online Bill Pay feature allows you to schedule one-time or recurring bill payments that are automatically deducted from your account on the date you specify, helping you avoid late fees and stick to your goals. You can also establish regular automatic transfers from your primary account to an emergency savings, retirement, or other account for effortless saving.  

Find Your Financial Balance

Paying down debts and building robust savings are sound practices that are vital for achieving financial stability, but attempting to do both at the same time can be challenging. Decide which goal is more important for your needs, and create a budget and strategy that reflects this priority. Embrace tools and resources that can help you on your journey, and remember: The key is balance. If your initial strategy isn’t quite working, then adjust it––or reach out to Suffolk CU for personalized guidance to empower your financial health.