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• By Kevin Alvarez

Paying Down Debt Is Saving — America Saves Week 2023

Making the decision to pay down debt, particularly consumer debt, can be mixed with emotion. You feel good about choosing to take concrete steps to pay off balances on credit cards, auto loans, student loans or other installment loans. On the other hand, you feel less positive about the amount of money you are directing into a savings account. Well, we’re here to show you how reducing debt is a form of saving, to give you strategies for the best way to do so that align with your personal situation, and to boost your financial confidence to keep you working toward your goals.

As you pay off your debt you are freeing up money, allowing you to direct those funds toward saving for something else that’s important to you – perhaps an emergency/opportunity fund, a vacation, home purchase, or retirement. This money is freed up as you spend less on interest, and possibly late fees, and lowering the debt balances themselves.

If you have more than one debt you want to pay off, for example an auto loan and a credit card balance, there are two main strategies to help you decide which debt to pay off first.

  • The snowball method focuses on the balances of each loan. In this strategy, you make the minimum payment on all your loans except the one with the smallest balance. With this loan, you put as much money as you can toward it and when it is completely reduced you allocate that money to the next smallest balance. Your confidence gets a boost every time you see an account balance at zero.
  • The avalanche method focuses on the interest rates of each loan. In this strategy, you pay the minimum payment on all your loans except the one with the highest interest rate. You apply any remaining money you have for debt repayment to the highest interest rate loan. By paying off the debt with the highest interest rate first you reduce the overall amount of interest you must pay.

You choose which method is right for you and your situation.

Once you are on a path to reducing your debt, reflect on the type of relationship you have with credit. Credit is a tool. When used wisely and with purpose, credit can help you achieve your financial goals and build financial confidence. Having a clear view on when and for what purpose you use credit is the foundation for a positive relationship.

Sometimes we’re told that there are good types of debt (home mortgage) and bad debt (credit cards). This type of categorization is based only on the financial aspect and not the personal situation you are dealing with. It may feel better to ask yourself if the type of debt you are taking on is a good decision for you or not.

For example, when an emergency expense crops up and it is large enough that it will deplete all or nearly all of your emergency savings, you may feel like you’re on shaky ground if another expense crops up before you can replenish your savings. So, you may weigh this option against using a combination of savings and credit based on what feels best for you in the situation.

Making purposeful choices about credit, something that you plan for financially and mentally, can help you build more financial confidence.

You can use the America Saves Spending and Saving Tool to calculate how much you have available for debt repayment, take the America Saves Pledge to make a plan for this repayment, or listen to the ThinkLikeASaver Podcast for even more tips.

SafeAmerica Credit Union is here to help you on your saving journey. Check out all the Savings opportunities we have to offer.

Savings Accounts

• By Kevin Alvarez

Practicing Healthy Habits Can Help Spark Your Financial Independence

A Path to Financial Independence

Making the transformation from being a carefree young person to a financially healthy adult can seem overwhelming and scary.  Most young adults starting out can attest to the challenges of managing an entry-level salary while still striving for financial stability. But there are ways to create a path to financial independence early in your career.

Though your salary may be minimal now, it’s vital to implement a realistic plan designed to save, budget, and maximize your cash flow.  If you find yourself in need of help reaching your financial independence, consider implementing these habits

Write Down What You Spend

Budgeting is the foundation of personal finances at any stage of your life, not just for those starting to “adult.”  If you’re new to budgeting, the first step is to write down all of what you spend. It could the coffee you get each morning, the sofa you purchased for your apartment or house, or the monthly charge for the streaming video service you use.

The idea behind a budget is not to limit what you do with your money, but more importantly to maximize the money you work hard for each and every day.   I remember when I began to dive into my finances and document my spending as a young adult, it was a huge eye-opener.  It became clear where I was wasting money and could cut back.  Cutting out even small things, such as that coffee or a pop purchase each day, could save you over $100 per month.

Best of all, technology has made it easier to connect you with your finances and spending habits. There are a variety of free budgeting apps available to you that will basically do all the tracking of your spending for you. It’s there each and every day to review as needed.

Create Clear Financial Boundaries

Ignoring the “Joneses” can be one of the biggest battles when making practical decisions regarding your finances.  After I graduated from college, I thought I deserved to buy the newest of everything. I soon realized however that spending outside of what my budget could handle would push me further away from saving money and much further into debt.  “Can I do without this?” is one of the questions you should be asking when making a sizable purchase such as a new automobile, or buying/renting in the new trendy neighborhood. For example, it was a difficult decision for me to stick with my used car that I had already paid off instead of buying a brand new vehicle after college. But it was a smart one.

One thing you could consider is the “50-20-30 rule.”  Experts state that we should spend 50% of our monthly income on necessities, which would include utilities, food, and rent.   The next 20% would be allotted to savings and debt, such as paying off any loans or student debt.  The last 30% of your income would be for personal purchases, things like your personal mobile phone plan, internet/cable/streaming services, etc.  Staying within these guidelines can set forth financial boundaries that will cultivate a healthy financial future.  Forget the noise of the Joneses and stay within your means.  Eventually, you’ll build up your finances and leave others in your financial dust.

Paying Yourself is Priority #1

When it comes to managing your finances and becoming more independent, you have permission to be a bit selfish.  Prioritizing paying yourself above and before you pay anything else is highly important when it comes to having a successful financial future.  No one can avoid unexpected expenses or financial emergencies, but you should be prepared.

I have come to think of my finances with this saying in mind: “Hope for the best, but plan for the worst.”  Having a savings plan will also keep you from accumulating debt with credit cards and loans.  It will help you learn to live and be content on a smaller budget.  One suggestion is to start putting a small amount into your savings each month.  Maybe you can’t do 10% of your paycheck, but even 5% is better than nothing. This provides you with the opportunity to make saving a financial habit.

Many employers have made it easier for their employees to streamline their savings by offering direct deposit options.  You can also schedule automatic transfers from a  bank account to a long-term savings or investment account.

Keep in mind that as you achieve your savings goals, you can increase the amount, as you can afford to.  It’s also smart to contribute as much as you can to your companies 403b or 401k employer-sponsored retirement savings plan.  This money can be taken out of your check even before you get paid so it’s likely that you won’t even miss it. You will likely experience long-term tax benefits as well.

This information is brought to you by GreenPath Financial Wellness

Youth Month

Save small. Dream big.

We're celebrating Youth Month all April long! Be sure to check out our blog each week or follow is on social media for a new youth financial literacy topic.

You can also check out our Youth Program to help get your child started on the path to smart money management.

Youth Month