How to Become Debt-Free and Save Money

Published on Oct 23, 2013 06:00 am

Paying down debt and saving money don’t have to be mutually exclusive, and doing both at the same time could help break your debt cycle. Learn how with a little planning and budgeting, you may be able to pay off your debt while still putting money aside for emergencies — and even invest in your future.

Managing DebtStep 1Prioritize your debt and tackle it in stages. You should consider the benefits of starting to pay down the debt with the highest interest.

Step 2Check your credit report and score. If they’re in good standing, you may be able to negotiate a lower rate on credit cards. If that doesn’t work and you want to get a new credit card, you will want to look for one with a low introductory rate. But be mindful of any terms or when rates increase.

Step 3If you are running out of options, you may look into consolidating your credit card debt on the card with the lowest rate. You’ll want to consult a financial advisor about what makes sense for your specific situation, though. Remember to be smart about which cards you close, if any. Older accounts can help show potential lenders that you have a history of paying your bills. Also consider consolidating student loans if you haven’t already, to keep your payments more manageable.

Budgeting and SavingStep 1Add up all the bills you must pay each month, such as utilities, rent or mortgage and, for now, any regular car or student loan payments. Don’t forget commuting-related costs such as mass transit or gas.

Step 2Review your expenditures for food, clothing, Internet and phone service. While these are necessities, they are also areas where you can often find savings by cutting back on extras or looking for special deals. Your immediate goal is to carve out enough savings to pay more than your monthly credit card minimum each month while accumulating enough cash to cover at least six months’ expenses. This may require having to forgo some luxuries.

Step 3Develop a long-term budget. Once you’ve saved enough emergency cash, think about contributing your monthly savings to a retirement plan at work. If your employer matches your contributions, this may be an even better use for that money than paying down your debt. However, stick to at least the monthly debt payments you’ve already committed to and put any extra funds you earn toward that as well.

Step 4Pay all your bills on time and get your three bureau credit report each year. Having good credit could help qualify you for better rates, like 0-percent financing on your next car. Make savings part of your monthly budget, it’s a good rule of thumb not to put any more on your credit card than you can pay off each month after paying for necessities and savings.

Helpful Reminders– While your student loans and mortgage may comprise the largest portion of your debt, paying these off over time may make good financial sense if the rates are relatively low, as you can qualify for an interest deduction on your taxes.

– Be aware of when special introductory rates on credit cards end.
– Seek advice before closing any credit card accounts, as fewer accounts could have an adverse effect on your credit report.

About the Author
Nannette Croce is a certified paralegal who has worked as an employee benefits specialist and counseled employees on retirement preparation, including financial and estate planning. In addition to writing and editing, she currently runs a small business with her husband.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

Published by permission from, Inc.  © 2013, Inc.  All rights reserved.

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