How to pay off debt and boost savings

Have you ever reached that point of wondering if you will ever be able to pay off your short term debts?

You celebrate when you finally pay off one debt only to shortly after find you are back in debt all over again.

A short lived win that leads to a repeating cycle and life just becomes one of going through the motions. Working all the hours you can just to meet your repayments and not really having the money you want at your disposal for what you would really like to do.

There’s a way to break this cycle, it’s what I refer to as the 1/3 rule and have used this successfully with clients I coach. You can make it work for you too!

Here’s how it works

The 1/3 rule explained

Watch the video

The 1/3rd Rule –

  1. Set up your budget to manage your normal expenses and mandatory loan repayments. (If you have been making extra payments to get rid of the debt faster that’s fine, at this stage just create your budget based on the mandatory payment needed.
  2. Ensure your budget allows for a savings component, you can work out your minimum savings capacity by using this free online calculator. This is also explained in the downloadable guide ‘The Money Seesaw’ (includes 10 money saving ideas).
  3. Set up a separate account to put your savings into.
  4. Transfer into this account your regular savings (and any additional money you can save including additional amounts that you would normally put straight onto a debt as an extra payment)
  5. At the end of the month take the balance of your savings account and divide it by three. Use that amount as an extra payment on to which ever debt you choose.
  6. Repeat steps 4 and 5 each month.

You now have a balanced plan of both paying down debt faster and increasing your savings. These savings help protect you from the need for further debt.

Watch the video for a visual graph showing the positive effect of both working together.

While reducing debt faster is a good goal to have always ensure you are building adequate savings in the background.

Understanding your savings capacity

Debt and savings go hand in hand. Having these out of balance is like life on a seesaw, forever going up and down.

Fix it today
Includes 10 simple money saving ideas.