Inside: How to pay off debt and save money? You can do both, and it will change your life for the better! Take these steps to get it done.
We were running late for school. I hustled the kids to the car (“Tie your shoes in the van!”), slammed the door, jumped in, and turned the key.
The tire light came on.
Should I get out and look? That stupid light comes on all the time, and it’s always just a little low on air. I don’t have time for that.
But I know it’s going to nag at me all the way down the road. So I jump out to ease my mind before we rush to school. Except that this time, I actually have a totally flat tire.
Unexpected expenses are called that for a reason. They pop up out of the blue, and they are never a cheap fix. In fact, they are so likely to happen that they should be expected.
Even if you’re living debt free, most of us are just one or two unexpected expenses away from falling into debt. And if you already owe money, unexpected expenses can put you into a never-ending cycle of bills.
But what if you’re paying off debt? Should you really be worried about saving money when you have high interest rates?
How to Pay Off Debt and Save Money
Are you debating whether it’s more important to pay off debt or save money? Do both! The truth is, that you can’t pay off debt without saving money, but you can’t save money without paying off debt.
Let’s look at some reasons not having an emergency fund is keeping you in debt.
1. You Keep Putting Emergencies on Your Credit Card
Each time an unusual bill pops up, we’re tempted to just throw it on the credit card and deal with it later. But before you know it, there’s another expense and you still haven’t paid off the first one.
2. You Don’t Have a Budget
If you keep getting hit with bills you weren’t prepared for, it’s usually a sign that you have no budget. Or the one you’re using isn’t working. It’s time to look at it again and find a way to add another line item for an emergency fund.Are you still in #debt because unexpected expenses keep sidetracking you?Click To Tweet
3. You Panic-And Then You Spend More
How often do you get hit with a bill that you can’t afford, and it causes you to give up on your spending plan altogether? “If I’m going to put this on the credit card, I might as well treat myself to that while I’m at it.”
That attitude will keep you in debt forever.
4. You Don’t Expect the Unexpected
We don’t know when certain expenses are going to hit, or what they will look like. But you can bet your boots that unexpected events are coming.
This is why Grandma told you to save up a rainy day fund.
What’s the fix?
When you have an emergency in your life, the last thing you need to worry about is how you will pay for it. In fact, most of us will use the quickest and easiest method of dealing with the bill. At the time, the bigger worry is solving the problem.
Sometimes that means credit card debt. Other times it’s payments that stretch out for years.
Neither of those options will help you get out of debt.
An Emergency Fund Is the Key To Getting Debt Free
An emergency fund is not a savings account that you raid when you need to make a big purchase or cover a few extra bills. This money should be set aside just for unexpected expenses you couldn’t have seen coming.
A broken bone. A car wreck. Getting laid off or asked to go on furlough.
These are true emergencies. An unexpected expense such as one of these would be the reason to dip into your emergency fund.
How Much Should I Save Before Paying Debt?
Dave Ramsey recommends getting a $1,000 baby emergency fund in place before you tackle debt. If that seems like an impossibly high number, drop it to $500. On the other hand, if that seems far too low, bump it up a little.
But too low or too high, don’t let an emergency fund become the speed bump that keeps you from ever paying off debt. No amount of money in savings can compete with a credit card at 19% interest.
If you ever hope to really save money, you must get rid of credit card and high interest debt.
How To Get That Emergency Fund Together
Drop all your debt and bill payments down to the bare minimum. If you’ve been throwing extra at your debt to pay it off quickly, pay yourself first instead. Are you spending an extra $2.64 on your mortgage payment to round it to an even number? (I know I’m not the only one!) Stop doing that for now. Put that little bit in savings, too.
If you have to take a side job or an odd job here and there, do it. Today. Your future self (the one too busy dealing with the emergency to get a side job) will thank you.
Get control over your unexpected expenses, and you’ll finally reach your goal of being debt free.
When that flat tire pops up out of the blue, at least you won’t have to wonder how you’ll pay for it!
How do you handle unexpected expenses?