Balancing Between Paying Debt or Saving

You are seriously overspending if you have debt and trying to save, but there is a swift solution for this. Best solution is to pay your debt first before you save or even before you start on your mortgage. Forget the old cliché “you MUST have an emergency savings fund”. Because this logic will get the better of you while trying to pay your debts.

Here are some guides to pay off debt first rather than save at the same time:

> Pay off your debt with any savings you have. – Well, this may sound a bit off, but, yes, you read it right. My point is, if you have a savings of $1,000.00 and you owe the same amount from a credit card, compute the high interest rate incurred from your debt from the interest earned from your savings. Debts usually cost more than savings earn. Cancel them out and you’re better off.

> Banks would welcome your savings and incur debt, too! – Simply put, if you save/deposit money to the bank, you are actually lending your cash to the bank for them to lend to other people. The difference between the rate at which it borrows money from you, and the rate it charges others is the bank’s profit. So, it will always cost more to borrow than you can earn savings.

> There is an exception to the rule! – The rule is based on the fact that it usually much higher than the benefit gained from savings. So, you will gain more by getting rid of the debt than starting to save. Consider these:

** Penalty exception. If you are caught into a debt, paying it off will incur penalty, so does with some loans and mortgages. Then leave the cash sitting in a savings account until the penalty’s small enough that it doesn’t matter.

** The interest-free / very cheap debt exception. Debts cost. Yet those who carefully and conscientiously manage their debts so they’re constantly interest-free should follow the opposite logic. If the interest rate on your debt is less than the amount your savings earn after tax then, providing you’re financially disciplined, you can profit from building up savings and keep the debts. In effect, you’re being paid on money lent to you by the banks for nothing.

> Should you need an emergency fund? – This question may be difficult to deal with, because the idea of having some cash available makes one feel safe. Especially when we talk about traditional budgeting, it always reminds us to have a bit of a “savings”. But I beg to disagree, the aim-point should be to become debt-free. Still, the best thing to do is to pay-off first your debt using your savings/emergency funds.

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Do Your Budget Plan to Resolve Debt Issues

Doing your budget planner accurately should not take too long. It would be easier if you gather all your bank and credit statements from the last 3-months. List all standing orders, direct debits and give you an accurate idea of what you spend.

For your grocery, gather all your receipts from the last 3-months, add up all food spending listed then divide by three to reach average monthly spend.

It’s always surprising to see quite how many things you spend on. Worse still is how much you spend on them. Yet there are always ways to save. It’s worth considering if you’re getting the best value for money, and can you cut costs?

Gather also your pay-slips to establish the exact amount you earn. Once you have the exact picture of your income expenditure, hopefully, you have triggered the end of which tells you the truth of your finances.

Providing you’ve been honest with yourself, it’s time to relax a bit – but it should not stop there. You need to work on reducing, adjust spending habits and create a reasonable spending pattern. Paying less for things means you have more money in your pocket to enjoy life more (and possibly save some for the future too!).

Spending more than what you earn may not immediately give you a negative impact, but it is a disaster waiting to explode! Worst is, you will end up borrowing more! You may feel that this is over-reacting but, when you are caught in spiraling debt – it touches every element of your life. Many people mistakes themselves about this, common thought is, “that doesn’t happen to nice families like us”. Well, I’m afraid even if you’re middle class, you’re not insulated from debt. In fact you’re in the prime category for debt crisis. It’s crucial to take the blinkers off. Far too many people in work with good salaries have bigger debts. If your non-mortgage debts exceed half your after-tax salary, it’s a real issue.


> Pain-free spending – Spending cut-back ensuring you live the same way but pay less. Don’t just look on the things like, credit cards, bill/mortgages. You can also save on childcare, taxes, etc.

> Re-budgeting adding the expected savings – Check your budget planner and incorporate expected expenditure based on expected pain-free savings.

> Cut-back on painful savings – You need to spend less, do less and sell things until you are living within your means. You need to start slowly to reduce on your spending, run through what you need. And if you have assets but are income burden, then consider flogging things you don’t really use, this will definitely help you afloat.

Working on one’s finances is quite tedious and tiresome. BUT, it is a must! At the end of the day, once you are good with your finances, life should be appreciated and enjoyed!

Happy budgeting!


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Options to Consider in Clearing Your Debt

Paying your debt or keeping up with your financial commitment is a day-to-day struggle. We have outlined some common options that you can work on, but it is also wise to consult professional advice if you have struggles in implementing it out alone.

CONSULT OTHERS FOR IMPARTIAL DEBT ADVICE – Seeking partial advice should not cost you. You can approach groups or organizations in your area. They will help you to decide the best options to manage or clear your debts.

OPTIONS AVAILABLE IN CLEARING YOUR DEBT – Lots of debt solutions are available – which one will be suitable for you depends on your personal circumstances. You may be able to reach an informal arrangement with the people or organizations you owe money to (also known as your creditors) to make payments based on what you can afford after essential household outgoings. For this sort of arrangement you would also ask them to freeze interest and charges.

> The Debt Arrangement Scheme – It is a free debt arrangement solution that lets you arrange your debts over time at a rate you can afford. While doing this, you will get a protection from creditors who are trying to recover their money.

> Debt Management Plan – It is a kind of arrangement set up between you and your creditors, wherein you will pay an amount you can well afford on a non-priority debts. It sets out how much you will repay and agrees a timetable for repayment. This is normally a monthly payment to a debt management company that manages to pay your creditors.

> Trust Deeds – It is a voluntary arrangement between you and creditors to pay back part of what you owe. This allows you to make a monthly payments against your unsecured debts, usually short term debts. Once that period is over, the rest of the debt is written off. Creditors in the trust deed are prevented from adding more interest to the money you owe and from taking further court action against you.

> Bankruptcy – It is a way of dealing with debts that you can no longer pay. If you declare bankruptcy, assets you have under your name will be used to cover your debts. Before declaring so, make sure to speak with a free debt adviser first. After a certain period of time, most of your outstanding debts should already be written off.

> Full or Final Arrangements – If you have funds coming in that will cover partial of your debts, you can inquire from your creditors if they accept a partial payment and allow you to write off  the amount balance. Alternately, they might allow you to make monthly payments for an agreed period of time, until the full balance is written off.

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Best Workaround to Get Out of Debt

When you are neck-deep in debt, you may feel that getting out of it would be next thing to impossible! But when you have the will to level up and pay your debts, you would always find a way.

Assess your lifestyle, adjust your spending, look for additional jobs that can augment your funds. Make a list of what you owe. Here, you can start by following these steps:

> How much do you owe? – It may sound like an easy thing to write, but this can be a difficult part as you may be still in denial. Pick up your pen and paper or make a spreadsheet and be realistic about it. Create a cash-flow calendar to get updated with how your spending is.

> Use cash in spending – Paying with credit card seems so easy to deal with; BUT, when you use the hard-earned cash, you will create some sort of awareness and value of your money.

> Create a rule with payments and spending – If you want to come up with a debt repayment plan, you need to set a goal or plan which is attainable and sustainable. Lessen rather than cut on spending. From the amounts you shave-off from your spending, make a record and assess how much you saved, and you can use to cover for your repayments.

At the end of every month, you will notice how much you saved from non-important purchases, and covered the amount needed for repayments, and interests you saved.

> Negotiate to reduce your rates – You can ask help in making this plan to work. Ask your lenders to assist you on how to reduce your interest rates. Perhaps you could arrange for a certain rate balance transfer of 12 month at 0% annual percentage rate and paid off within a year. Or you can just call in to inquire if you could reduce your annual percentage rate.

> Stop lending so much money to your federal/government taxes – Every month, an amount of your pay goes to your taxes. And annually, you get a tax refund. It’s just like lending your money to the IRS interest-free.

Rather than paying on your debt every month while the government gets your money, you should be using that cash toward your debt. You can put your money back in your pocket by adjusting your withholding on a W-4 Tax form. Refer to the government’s withholding calculator to figure out how many allowances you should take. File your new W-4 to your HR department and give yourself a raise.

> Ask for a professional assessment - If you are having difficulty on debt or are really unable to make payments on what you owe, you may need professional help. Credit counseling can be especially useful if you’re struggling with student loan debt or medical debt, not just credit card debt.

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Ways to Avoid A Circling Debt

If you feel alarmed opening your billing and credit card statements every month, you are not alone!

With loan/debts, biggest challenge is that, it balloons quickly, kudos to the high interest rates!

Take these few steps to keep your debt from incurring mind-blowing interest rates:

> Pay More Than The Minimum Amount Required – Paying more than the minimum will greatly reduce both the time it takes you to pay off that debt and the interest that you’ll pay on it. Even if you can only pay $100 or $50 more each month, do it.

> Stop Spending. – This is self-explanatory, if you want to keep your debt from spiraling, stop adding to it. Move to spending cash until you can reduce your credit card debt. It’s tempting to pull out your plastic to pay for a new item that you fancy. But instead, save up the money first and then make your purchase. Remember, every time you make a purchase, you are making it even more difficult to pay down that debt.

> Make a Plan – You’ll have difficulty to control your debt if you don’t first draft a plan to deal with it. Target the credit card with the lowest amount of debt. Make extra payments each month on that card until it’s paid off. You can then move on to the card with the next highest amount of debt, making extra payments on it. Or, you follow the same strategy but start with the card with the highest interest rate, making extra payments on it each month until its balance hits zero. Then move on to the card with the next highest interest rate.

> Cut Unnecessary Expenses – If your credit card debt is out of control, you need to make paying it down a priority. One way to do this is to free up extra money each month by cutting down on unnecessary expenses. This could mean reducing the number of times you eat out each month and using those extra dollars on your monthly credit card payments. It could mean ending a gym membership. You can exercise without belonging to a gym, after all.

Just make sure that when you reduce an unnecessary monthly expense that you use this money to whittle down your credit card debt.

> Tackle the Reasons Behind Your Credit Card Debt – The final step in controlling your credit card debt might be the most difficult: You need to determine why you ran up so much debt. What were the reasons behind your excessive debt?

If you don’t figure out why you abused your cards, you run the risk of running up your credit card debt again after you pay it off. If you want to keep your credit card debt from ever spiraling out of control again, you need to take a close look at your negative spending habits and change them — permanently.

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Stressful Debt

Speaking of debt, don’t fret because you are not alone in this battle! DEBT can be overwhelming to realize that this has gotten over your thoughts, and the stress of thinking that you may not be able to pay it. The key to RESOLVE the problem is NOW! Procrastinating the problem may only lead to deeper anxiety. Taking charge early on will get you on the path towards a better financial future.

Here are some circumstances that indicate debt it has become a problem:

> Bills piling up over the previous month’s unpaid ones.

> Paying late payment fees.

> Avoiding to open bills when they arrive.

> Delaying to balance your checkbook.

> Bounced checks.


To recognize the problem, you should know how much you actually owe. Some people don’t and try to avoid, even in denial of the current problem. Start making a list of everything you owe: mortgage, credit card, loans, or even money borrowed from family or friends. Write down:


– The lender’s name

– The amount you owe

– The term of the loan

– The interest rate and fees


Then sum them up. Looking at the numbers can be worrisome, but this is a positive – and necessary – first step to tackling your debt. Paying the minimum required amount and due date on all your debts will help you save from charges/fees.


Now that you have analyzed your debt situation, it’s time to look at your monthly budget and set realistic goals. That trip you had planned for quite some time, or the new car or house you were hoping to buy may not be in the cards right now given your new outlook on reducing your debt. Some luxuries may need to take a back seat while recovering from your debts. Practice being frugal – weigh your “needs” from the “wants”. Once you recovered from the debts, you can swiftly re-plan what you have put on hold while struggling with your funds.


Reducing debt is like losing weight. You’re not going to lose 50 pounds in a month – you need realistic goals in reasonable timeframes, and debt works the same way. For most people, it takes years to become debt-free. This doesn’t mean you have to stop enjoying your life. It’s just a reminder to live within your means and be diligent about adjusting any spending habits that have contributed to the situation you are in today. Dedicating yourself to paying off what you owe and becoming debt-free will be worth the wait, with the payoff being a brighter financial future. After all, life without financial worries will put you in a healthier perspective, and enjoy life as it is! Happy and stress free!

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