How to Save Money While Trying to Get Out of Debt

Living with debt can make saving money feel out of reach. Each bill, payment, or interest charge seems to pull your budget in the opposite direction. But finding ways to save can offer a sense of control when everything else feels tight.

When you are in debt, planning for savings might seem like the last thing you should focus on. However, setting something aside, even if only slowly, can help you avoid falling deeper into the cycle. 

Savings give you a safety net. They prevent small setbacks from escalating into larger ones and create space to manage life without always relying on credit. Figuring out how to save money when you’re in debt begins with taking realistic steps that match your specific situation.

Key Takeaways

• Saving money while in debt is possible with small, steady changes to daily habits.
• A basic emergency fund can prevent new debt during unexpected expenses.
• Budgeting strategies like the 50/30/20 rule help balance spending, saving, and repayment.
• Cutting non-essential costs does not require giving up comfort or quality of life.
• Debt repayment methods such as snowball or avalanche can free up cash over time.
• Tracking spending habits reveals hidden leaks and improves financial control.

Relationship Between Debt and Saving

Debt and saving are often seen as competing priorities, but they actually work best when approached together. Managing both at the same time allows for more stability and helps prevent the cycle of borrowing from repeating itself.

When most of your income goes toward loan payments, it can feel like there’s no room to save. But skipping savings entirely often leads to more stress. Around 37% of U.S. adults would struggle to cover a $400 emergency. 

Without some sort of financial cushion, even a minor car repair or medical bill can undo months of repayment progress. In this way, saving becomes a form of protection, not a luxury.

The relationship between debt and saving is also about timing. High-interest debt, such as credit cards, typically takes priority because it incurs higher costs to carry. But that doesn’t mean savings should be paused altogether. Building a small emergency fund, ranging from $500 to $1,000, can reduce the need to rely on high-interest credit lines in the future.

Saving money while in debt can also improve your mindset. People who set aside even a little each month often feel more confident in their financial choices. It shifts your focus from just managing bills to planning for something better. 

There’s also a practical reason to save during debt repayment. Life is unpredictable. A job change, health issue, or family emergency can quickly derail a payoff plan. Savings act as a buffer, keeping those unexpected moments from becoming financial setbacks.

Can You Really Save Money While Paying Off Debt?

Saving money while paying off debt is possible, although it often differs from traditional savings goals. Many people assume that all available funds should go directly toward debt. While that can speed up repayment, it also leaves little room for unexpected expenses.

The idea is not to match what others might save but to build a habit that fits your situation. For example, setting aside a small fixed amount each month can create a sense of momentum. Over time, this builds confidence and a sense of progress, even when debt balances are still present.

It also helps to view savings as a form of protection. A small emergency fund can reduce the need to rely on credit during surprise expenses, which makes it easier to stay consistent with payments.

Regular saving, even in small amounts, can offer several key benefits:

• Creates a financial buffer that reduces reliance on credit during emergencies
• Builds confidence and a sense of progress while managing debt
• Offers more flexibility and reduces stress during unexpected situations
• Supports better decision-making by creating a sense of financial control

These benefits show that saving while in debt is not only possible, but also practical for long-term stability.

Smart Budgeting Tips to Help You Save and Pay Down Debt

A well-structured budget can alleviate financial stress and bring order to a complex situation. When you are working to save money and pay off debt at the same time, a budget becomes more than a spending plan. It becomes a way to stay focused, make steady progress, and avoid setbacks that come from unexpected costs or unchecked habits.

Prioritize needs over wants

One of the first steps in creating a realistic budget is knowing the difference between what is necessary and what is optional. Needs include things like rent or mortgage, utilities, groceries, transportation, and minimum debt payments. These are the essentials that keep your life running. Wants, on the other hand, are things that bring comfort or enjoyment but are not required for daily living.

When debt is involved, prioritizing needs becomes even more important. A report from LendingClub showed that over 60% of Americans live paycheck to paycheck. In this environment, small financial decisions carry weight. 

Choosing to delay non-essential purchases or finding low-cost alternatives can open up more room for saving and debt reduction. This doesn’t mean cutting out every treat. It just means becoming more intentional about where your money goes and making space for your financial goals.

Use the 50/30/20 rule

The 50/30/20 rule is a budgeting guideline that helps break down income into clear categories. The idea is simple:

• 50% of your take-home pay goes to needs
• 30% goes to wants
• 20% goes to savings and debt repayment

For those managing debt, this structure can be adjusted. Some people shift part of the “wants” category into savings or repayment to speed up progress. What makes this rule valuable is not the exact percentages but the clarity it brings. 

It highlights how much of your income is supporting your lifestyle and how much is working toward long-term stability. This balance can help you stay in control and avoid the stress of uncertain spending.

The 50/30/20 approach is especially helpful for people who feel overwhelmed by budgeting. It doesn’t require tracking every dollar but still offers a clear plan. Over time, it becomes easier to adjust these percentages as your income changes or your debt shrinks.

Track spending habits to find hidden leaks

Even the most careful budgets can be thrown off by small, unnoticed expenses. These hidden leaks add up quickly and can quietly drain your ability to save or pay off debt. Things like unused subscriptions, impulse purchases, or service fees often go unnoticed until they become part of a routine.

Americans spend an average of $219 per month on subscriptions, many of which are forgotten or underused. Another common issue is overspending on food. Regular takeout meals or unplanned grocery runs can add hundreds to your monthly costs.

Tracking your spending is a simple way to bring these habits to light. This could mean reviewing bank statements, using a budgeting app, or keeping a spending journal for a few weeks. Once patterns appear, it becomes easier to make changes that stick. For example, setting a weekly grocery limit or reviewing subscriptions monthly can lead to noticeable savings without requiring major lifestyle changes.

How to Cut Daily Expenses Without Feeling Deprived

Cutting daily expenses does not always mean giving up the things that bring comfort or joy. With the right approach, it becomes possible to spend less without feeling deprived. The goal is to reduce unnecessary costs in ways that feel manageable, not restrictive.

Many small purchases happen without much thought. The average American spends over $140 each month on impulse buys alone. Identifying these areas helps create space for savings without needing a complete lifestyle overhaul.

Small shifts in daily routines can make a noticeable difference. Planning ahead, using what you already have, and exploring low-cost alternatives are just a few ways to cut back while still meeting your needs. 

The table below offers a few practical swaps that can ease financial pressure without sacrificing quality of life:

Ways to Build an Emergency Fund While Still in Debt

Without any savings, a single surprise expense can undo weeks or months of repayment progress. A small fund can prevent this by covering emergencies without adding to your debt load. Here are a few practical ways to begin building your emergency fund, even while staying focused on repayment:

• Round up purchases and save the difference: Some apps automatically round each transaction to the nearest dollar and move the extra cents into a savings account. This approach builds savings gradually, eliminating the need for large transfers.
• Set aside a portion of unexpected money: If you receive a tax refund, cash gift, or work bonus, consider saving a small part of it. Even 10 to 20 percent of a lump sum can make a meaningful difference without taking away from your main expenses.
• Sell unused items and direct the profit into savings: Clothes, electronics, or household items you no longer use can be listed on resale platforms or local groups. Turning clutter into cash gives you a low-pressure way to build your fund.
• Use cashback or rewards to fund savings: Cashback from purchases or rewards points can often be converted into real money. Instead of spending those bonuses, consider moving them directly into a separate savings account.
• Cut one small monthly cost and redirect it: This might be a streaming subscription, a weekly takeaway meal, or a forgotten app renewal. Redirecting even $10 or $20 each month adds up over time and keeps your savings effort consistent.

Debt Repayment Strategies That Also Free Up Cash

Paying off debt does not always mean giving up all flexibility. In fact, some repayment strategies can help free up cash along the way. The right approach can reduce interest, lower monthly payments, and create more space in your budget over time.

Choosing a Payoff Style That Fits

There are two well-known approaches to debt repayment, each with different strengths. Both can help reduce financial pressure and gradually create more space in your budget.

• Snowball Method: This focuses on paying off the smallest balances first. This approach builds momentum and motivation, especially for those who feel overwhelmed by multiple accounts. Once a small debt is cleared, that payment amount can be rolled into the next one. The emotional boost often leads to more consistency and fewer missed payments.
• Avalanche Method: This method targets debts with the highest interest rates first. Over time, this results in less interest being paid overall. For individuals who can stay motivated without immediate results, this method may ultimately save more money in the long run. 

Borrowers who use structured repayment strategies are more likely to save when they experience visible progress early. This is why some choose to combine both methods.

Both strategies allow you to gradually free up cash. As each debt disappears, monthly expenses decrease, leaving room for savings or emergency fund contributions.

Consider Refinancing or Consolidating Loans

Refinancing involves replacing an existing loan with a new one that has better terms. This might include a lower interest rate or a longer repayment period, which can lower the monthly payment amount. 

Consolidation combines multiple debts into a single payment, often through a personal loan or balance transfer. This can simplify repayment and lower the total interest if the new rate is more favorable.

The average credit card interest rate in early 2024 was over 21.37%. Refinancing to a lower-rate product can create meaningful monthly savings. While not everyone qualifies for the best rates, exploring available options may reveal better terms that free up room in your budget.

Negotiate or Adjust Minimum Payments

In some cases, creditors may allow you to temporarily reduce your minimum payments or switch to a hardship plan. These programs are often offered to borrowers who are struggling but still making an effort to stay current. Lowering your minimum payments, even for a short time, can create breathing room to cover essentials or build a small emergency fund.

Some federal student loan programs, for example, include income-driven repayment plans that tie monthly payments to your income level. These plans often alleviate financial pressure while still allowing for long-term progress.

Conclusion

Saving money while living with debt often means working with tight margins and shifting priorities. It requires careful planning, consistent habits, and a willingness to make gradual adjustments over time. From building an emergency fund to cutting daily expenses, each step can ease the pressure and move you toward more financial control.

The process may feel slow at first, but consistent choices add up. Even modest savings can protect your progress and help you handle life’s surprises without going further into debt. Paying off what you owe while saving for what you need is not only possible but also practical when the right tools and mindset are in place.

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FAQ

Can building credit help with saving money in the long run?

A strong credit score can lead to lower interest rates on future loans or credit cards, which reduces the overall cost of borrowing and frees up more money over time.

Is it better to use savings to pay off debt completely?

This depends on the situation. Using all your savings to pay off debt may leave you vulnerable to emergencies. Many experts recommend keeping at least a small emergency fund while repaying debt.

What role does financial stress play in saving and repayment?

High financial stress often leads to impulsive spending and missed payments. Reducing stress through planning, support, and achieving small wins can lead to improved long-term results.

Can joint budgeting help if you share expenses with someone?

Couples or roommates who manage finances together often save more by splitting costs and reducing duplicated spending.