Step four might surprise you.
I want you to start an emergency savings account and your goal is to save an initial $1,000. Yes, you read that right.
Why would I tell you to put money into savings when you’re trying to pay down debt? It’s not like the interest you earn is going to be more than the interest you’re paying, right?
Because, if you don’t have a savings account to fall back on, you’ll be back in debt the next time you’re blindsided by an unexpected repair or medical bill. Life happens. If you don’t have money in the bank, how will you pay for the surprises it brings? With a credit card or a loan? It’s a bad habit, and it’s better to start breaking it now rather than later.
Just like your debt didn’t happen overnight, your emergency savings isn’t going to happen overnight, either.
1. Make a plan to save money from each paycheck.
2. Start small with $5 per week and increase over time.
3. Remember to pay savings first (and automatically) before you pay the bills.
You can put money in savings automatically through your payroll department. If you don’t have a direct deposit service through work, you can set it up with automatic transfers at the bank.
As I said, start small and work your way up. The ideal goal is to put 10% of your income into savings. But first, start with the emergency fund so the little emergencies don’t discourage you from your quest of paying down your debt
Next issue: We will actually start paying off your debt – bet you thought we wouldn’t get to this.