The question of saving money while paying off debt is a common one. Some people may think that you shouldn’t save at all while paying off debt. It is reasonable to think that you should be using all your available cash flow into paying off that debt as opposed to having some of that money just sitting in a savings account at a low interest rate.
The reason why is important to save while paying off your debt, especially when you are just starting out the process of paying it down, is that you are creating a habit. This new healthy financial habit is what will allow you, over the long term, to become and stay financially balanced. Following this line of thinking, the amount that you put away into your savings is not the focus of the exercise, rather than to create and to maintain this new habit.
You might be thinking that you will instead just use the money you have been using to pay off debt and switch it into savings once you have successfully paid the debt in full. However, it just isn’t as easy as it sounds.
The Obligation Effect
You see, paying off debt is an obligation. You feel the pressure to repay it, you see the interest rates charged when you don’t pay as much. This is can be felt as a burden, a stress often and thus creates a certain type of motivation to act accordingly. Why else would you choose to forgo that yummy fancy cup of coffee every morning and settle for the home-made version you have to make yourself? You are making sacrifices, but you know why and are motivated to achieve your goals. You have something driving your choice to use that money and to put it towards your debt as opposed to spending it elsewhere.
Making The Switch
Making the mental switch between using that extra money to pay off debt versus saving it can be tough. You no longer have that pressure, that obligation to do so. You will find it harder to restrict yourself on things you merely want in order to save that money, because it’s not as stressful to not save as opposed to not paying off your debt.
This is why creating this new habit as you are paying off debt is the best solution.