Yes, it’s possible to save money while paying off credit card debt. Here’s how

To stay off the hamster wheel of debt, experts recommend saving for emergencies while keeping up with credit card payments. That way, you can pay for unexpected purchases with cash instead of credit.
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So you’d like to pay off your credit card debt. But you’d like to also build your savings accounts. Is it possible to do both?

Yes, say <a s recommended.

“If you don’t have a nice pile of savings, when another emergency or unexpected situation comes, you’re gonna end up right back in credit card debt,” says Yanely Espinal, a financial educator and the author of Mind Your Money.

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With careful planning and budgeting, it’s possible to make aggressive payments to your credit card debt whilesaving for the future. So resist the urge to throw all your money into your credit card payments. Instead, use this moment as an opportunity to get your finances in order.

In this step-by-step guide, Espinal and Tania Brown, an Atlanta-based certified financial planner, explain how to keep up with your payments while staying off the hamster wheel of debt.

Step 1: Track your spending and see where you can cut back

To pay off your credit card debt, you’ll need money. It’s time to revisit your budget.

🗓️ To see where you can save, track your spending for 30 days.Brown tells her clients to use a paper calendar, but you can also use a notebook.

Try not to use an app that tracks your spending for you,says Espinal. Manually writing out your daily expenses helps you “see the details of where your problem areas are.”

Then, review all your expenses and ask yourself:

What expenses can I get rid of altogether?Maybe nip your matcha latte habit in the bud, or cancel that magazine subscription you rarely read.

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What can I temporarily cut?“You don’t have to cut everything while paying off debt,” Espinal says. That deprivation might tempt you to start spending again. Instead, think of expenses you can live without for a few months, like if you’re paying for multiple streaming services, cut a few you don’t use often.

What else can I do to save money?Rethink your spending habits. Try a spending fast, resist impulse shopping or research ways to save money at the grocery store. Or maybe you want to try something more drastic, like moving to a place with cheaper rent or getting a roommate.

What can I do to boost my income?If you can’t find the extra cash in your current budget, you may need to find it elsewhere, says financial educator Rita-Soledad Fernández Paulino. That might mean looking for a higher-paying job, asking for a raise or taking on a <a ll be able to pay it off. That amount is completely up to you.

Let’s say you’ve done your analysis (and some soul-searching) and have decided to cut modestly from your budget. Here’s what your cuts could look like:

That’s a decent chunk of cash to put toward your debt journey.

Step 2: Set up emergency and “sinking” funds

As you begin your debt-payment plan, you’ll want to avoid using your credit cards for big purchases you can’t afford. To do that, you’ll need to set aside funds for emergencies and upcoming expenses, Brown says. The idea is to pay for things with cash, not rack up more debt on your credit card.

Here’s what you’ll need to start: 

🚑 About $500 to $1,000 for emergencies. That can help cover, say, an unexpected hospital bill as well as car and home repairs. Once you’ve paid off all your debt, Brown recommends trying to save three to six months of expenses for your emergency fund.

Whatever you’re putting towards emergencies, consider setting up an auto-deposit out of every paycheck, so you don’t have to remind yourself to prioritize it.

🎁 A “sinking” fund, or money you know you’ll spend, Brown says. The amount depends on your individual needs. For example, maybe you know that in the next year you’ll have to buy replacement items for your first-aid kit, Christmas presents and new tires for your car. Starting to put this money aside now will help you stay out of debt later and prevent last-minute panic.

Step 3: Make a budget

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How do you make sure you’re staying on track with your savings and debt payments? That’s where a budget can come in handy, Espinal says.

If you don’t have a monthly budget already, go ahead and make one. A budget should have line items for all your monthly expenses, including housing, food and transportation. (Need more advice? Check out our story on how to make a budget.)

🚨Then, you’re going to add line items for “emergency fund,” “sinking fund” and “credit card debt.”

Remember that $270 we saved in Step 1? We are going to use that to pay off credit card debt. You can use a free online debt calculator to help you decide how big your credit card payment should be.

You should be making the minimum payment on your credit card. If you don’t, you’ll be hit with late fees, your credit score will drop and eventually your debt will go into default. Making extra payments can help you pay off your debt faster and reduce the amount of interest you pay.

So with the $270 extra cash from your new budget, you might spread out your funds like this:

Once you pay off your credit card and stock up your emergency and sinking funds, you can start putting that extra cash into whatever financial goals you have next, whether it’s paying off another credit card or saving for a big purchase.

Liked this story?Sign up for Life Kit’s Guide to Paying Off Credit Card Debtfor more tips, including advice on which card to pay off first.

The story was edited by Malaka Gharib. The visual editor is CJ Riculan. We’d love to hear from you. Leave us a voicemail at 202-216-9823, or email us at LifeKit@npr.org.

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