This is a guest blog post by Andrew Rombach, a Content Associate from LendEDU - a consumer education website and financial product marketplace.
For most adults in their 20s and 30s, buying a home and taking on a mortgage payment is a rite of passage. But there is one big hurdle you have to cross before you can do either – saving for the down payment.
This can be tough since many people aren’t in a good position to stash away money due to student loans or other outstanding debt. If this sounds like your situation, then paying down debt and improving your financial health could be a good New Year’s resolution.
Let’s look at a few tips for managing debt and budgeting more effectively that will turn that resolution into a reality.
Stick to a Cash Envelope Budget
Online budgeting tools can help you manage your money, but many people find that when they rely on technology alone, they continue to overspend. And if you always use a debit or credit card, you are more likely to overspend.
That’s why many financial experts recommend sticking to a cash envelope budget. With it, you still set a monthly budget, but then you create envelopes for each budget category. Once you get paid, you put the budgeted amount of cash in each envelope. Any money that is left can either be saved or used to pay down debt.
This makes your budget become more tangible, and it can help you become more disciplined in your spending habits. Plus, with a cash envelope budget, you’ll never miss a monthly bill.
52-Week Money Challenge
If you are struggling to save, the 52-Week Money Challenge could be exactly what you need. It’s a savings challenge that promises you’ll save a big chunk by the end of the year by putting away just a few dollars a week.
At the end of the first week, you’ll set aside $1 in a jar. The next week, you’ll put $2 aside, the following week $3. You get the idea.
By the end of the challenge, you’ll be putting aside $50 per week and will have saved $1,400. This challenge is easy and motivating because you have the visual reminder of the money jar. If the visual is too tempting, consider putting the money in a savings account instead.
Consolidate and Refinance Existing Debt
Some people have a hard time saving because all of their extra income is going toward their debt. In particular, student loan debt is a huge burden for many young adults. And credit card debt from multiple cards can also easily become unmanageable as well.
This is where debt consolidation and refinancing can be helpful. First, you consolidate multiple loans into one monthly loan payment. And you refinance that loan at a new, lower interest rate. This simplifies your payments considerably, leaving you with just one combined obligation.
Pay Off High-Interest Debt
The “debt avalanche” system is a good way to get out of debt faster and save money on interest. You target your debt with the highest interest rate first and pay it off as quickly as you can. Then you move on to reducing the debt with the second-highest interest rate and so on.
The biggest benefit to this method is that it helps you get rid of your high-interest debt first, which will lower your monthly payments and give you more wiggle room to attack the rest.
The Bottom Line
Regardless of the method you choose, paying off debt and saving money should always be a priority. Take the time to research different methods and choose the one you feel would be the best fit for you. If you pick the right one, then you can reduce the cost of your debt – thus saving money on repayment. This can be a great starting point if you’re looking to become a home owner in the near future.
Debt can feel overwhelming. Always remember that you have options. Make sure you acknowledge your progress and stick to your New Year’s resolution plan. With these methods, you can put yourself on a faster track to long-term financial health.
Want more tips on saving for a down payment and other advice for first-time home buyers? Check out what these experts have to say (the four tips above are included there as well).
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