How to save money when you are in debt

When you’ve got lots of debt, it can be hard to think ahead towards other financial goals. You live not only paycheque to paycheque, but day to day, trying to take charge of the debt cycle.

save money when you are in debt

“It can seem impossible to even consider trying to build up your savings when you are trying to pay down debt and are putting as much money as possible down every month. It may not even seem to make sense to save money. If the goal is to pay down debt, shouldn’t you be using all available money to achieve that goal?” says Jeff Schwartz, Executive Director, Consolidated Credit Counseling Services of Canada.

Is your debt preventing you from achieving other financial goals? The answer is to pay it down today and then develop a plan to help you work towards other goals. Call one of our trained credit counsellors at or visit our free online debt analysis.

Why savings is important when you have debt

Should you pay off debt or save money?  As your debt continues to accumulate interest, shouldn’t you take care of that costly debt today and deal with savings later?

One argument for paying down debt before your starting saving is that debt is expensive. A lot of credit card interest rates are high and are considerably higher than interest rates that you will earn on savings.

While it does seem counterintuitive to take money away from debt repayment when the goal is to be debt-free, the opposite is true. Having money in savings is an essential part of paying down your debt and achieving debt-free status.

What would happen if you encountered emergency expenses or your income was reduced or interrupted in situations such as dealing with job loss, reduction in hours, illness or injury? How would you cover costs? Chances are, you’d have to turn to credit. Not only would you erase all the hard work that you’d done to date to pay down your debt, but it is very discouraging to have to start over again repaying debt. You may lack the drive to do it all over again, which means that you are actually further away from your goal.

That’s why you need to have savings on hand.

But I don’t have extra money!

Don’t get caught up with amassing a huge amount of money in savings. You can start small. The key here is to identify the importance of savings and establish the habits that will let you save. After you’ve done that, savings will grow. If you find that you don’t have a lot of extra money that you could direct towards savings, then it is time to retool your budget.

“When you think about it, simply by establishing a budget and including savings, you are taking the necessary steps to stop the cycle of living paycheque to paycheque. That is because setting up a proper budget will help you to live within your means. Once you start living well within your means and prioritizing your spending, you’ll find money for savings,” says Schwartz.

Go through your budget in detail. Where can you cut back? How about cutting out extras like entertainment, dining out and travelling, at least in the short term? You’d be surprised at how much extra money you will be able to find to put into savings.

For expenses that you can’t cut out (like food, transportation and clothing etc.) find ways to cut down. Learn to meal plan, buy in bulk and use coupon and price matching. Start carpooling or walking/biking to work to lessen transportation costs; commit to buying second hand whenever you can for clothing items; purge your closets regularly so that you will always have stuff to trade in.

If you’ve gotten your expenses down to the bare bones, but are still finding money tight, try boosting the income side of your budget. Consider taking on a part-time job, getting a roommate, selling household items or even renting out your driveway for parking. Every little bit counts!

How to establish good savings habits

You are more likely to build up your savings when you save every single month. Set up this habit by having automatic deductions taken from your paycheque, either by your employer or your financial institution.

The reason that this is successful is because it is seamless. Mentally, you won’t even miss the money, because the “saving” is done for you. You will notice the benefits of that process as the balance in your account begins to rise.

How to turbo boost your savings

Plan ahead with what to do with “extra money” when you receive it. Do you receive an annual bonus at work? Do you receive cash gifts on birthdays and holidays? Are you getting a tax return? Plan to bank these before you get your hands on them.

Smaller savings strategies can add up too. For example, keep the coins you get back when you pay in cash and collect them in a jar.

Learn how to make your money grow

Once you’ve accumulated some savings, learn about different ways that you can make your savings grow with investing. Different types of investments can help you achieve various savings goals. For example, stocks and some mutual funds can help you achieve long term growth of your savings, but can be volatile in the short term so are better suited for long term savings goals. Cash or cash equivalent investments are more liquid, but earn less money. They are better suited for things like emergency savings.

By diversifying your savings, you lower the risk of investing, while positioning your savings to grow. That helps to counter some of the interest costs that you are carrying while paying down debt and saving money at the same time.

Want to learn how to set up a budget to save money and pay down debt at the same time? We can help. Call us at or visit our free online debt analysis.