Insider’s experts choose the best products and services to help make smart decisions with your money (here’s how). In some cases, we receive a commission from our our partners, however, our opinions are our own. Terms apply to offers listed on this page.
- Most people who have credit card debt throw all their cash and windfalls at the debt.
- It makes sense, but when an emergency crops up, there are no savings there to pay for it and the cycle continues.
- I recommend building a savings baseline before aggressively paying down your debt.
We were halfway through brunch when we started talking about her credit card debt.
“I need to pay off my debt as fast as possible,” she declared as she took another bite of her eggs benedict.
“I notice you don’t have any savings,” I replied. “I really think we need to figure out how to prioritize savings, even before working on paying down your debt.”
She put down her fork. “My goal is to pay off my credit cards in a year. I need to pay them off in a year.”
I asked her the question I ask every client who I deliver this seemingly backwards advice to. “How long have you been trying to pay down your debt?”
Long pause. “Eleven years.”
I told her it might be time to try something different, and she agreed to set up a savings plan.
One of the biggest insights I’ve learned working with Brunch & Budget clients is that the best way to pay down debt is to save.
What usually happens when you try to pay off credit card debt
Getting into debt can happen in a flash. You charge some travel expenses, or an unexpected family emergency comes up, or (and we’ve all been here!), you get really used to swiping your card because you don’t have to check your bank balance.
You keep throwing all your extra money to pay down the balance, which leaves you with nothing to spend until your next paycheck, so you use your credit card.
Then comes the month where you can’t pay down the full balance, so you let it carry to the next month. Another month passes like this, then another.
At some point, you hit your credit card screw-it number and just start charging everything to the card. I remember when my husband and I were about $12,000 in debt. I bought a sandwich with my card, thinking, what’s another $15 going to change?
Whenever you get a tax refund, bonus, or other windfall, you throw it at your debt, thinking this will give you the momentum to finally pay it down, but it feels like it’s always going into a black hole.
Why this happens
Our debt is a reminder of our past mistakes. It’s why we feel an urgency to get rid of it as fast as possible and also why we feel so much shame and embarrassment around it.
The system is designed for you to have easy access to consumer credit that is difficult to pay off because the interest charges are so high. Layer in a splash of shame, a pinch of regret, and a dose of personal responsibility, and you can see how quickly you can get buried in debt.
I was already a financial planner when my husband and I got into five-figure debt and I realized the best way to make clients feel less shame was to let go of my shame around it.
Let’s try something different
We get so focused on trying to take care of the debt that we forget to take care of ourselves, too. When you don’t have savings and an unexpected expense comes up, the expense goes right on the credit card, and you’re back in the same debt cycle you were trying to get out of.
Having money in savings is the financial equivalent of putting on your own oxygen mask first.
Insider’s Featured Savings Accounts
2.35% APY (as of 10/27/2022)
Learn more
On American Express National Bank (Member FDIC)’s website
5 steps to successfully paying down your debt by saving
1. Determine a savings floor you want to reach before you put any extra payments toward debt.
This could be $1,000, one month’s rent, one paycheck’s worth of savings — whatever amount you choose, make sure it’s meaningful and feels attainable in the next three to four months. For instance, if your savings floor is $1,000, can you put $250 a month away for the next four months?
2. Reduce your monthly debt payments to minimum payments until you hit your savings floor.
This is going to feel the most counterintuitive because the rule of thumb you’ve had drilled into your head is to “never pay just the minimum.”
3. Once you’ve hit your savings floor, split the amount you’ve been putting into savings between your savings and your debt.
For instance, if you’ve been putting $250 per month away in savings, put $125 towards savings and $125 towards the credit card debt.
4. Decide on a debt pay-down strategy
Choose something, like the debt snowball method, that you can easily maintain or automate so you minimize how much you’re thinking about the debt.
5. Don’t put every windfall towards your debt.
When you get a windfall like a tax refund or bonus, put at least half the amount into savings before you get tempted to pay down your balance.
The most important thing to remember while you’re paying down your debt is that your debt does not define you. The more you can let go of the debt feeling like a burden or albatross, the more you can free yourself from it. Let’s get shameless about our money, starting with our debt.
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Insider’s experts choose the best products and services to help make smart decisions with your money (here’s how). In some cases, we receive a commission from our our partners, however, our opinions are our own. Terms apply to offers listed on this page.
- Most people who have credit card debt throw all their cash and windfalls at the debt.
- It makes sense, but when an emergency crops up, there are no savings there to pay for it and the cycle continues.
- I recommend building a savings baseline before aggressively paying down your debt.
We were halfway through brunch when we started talking about her credit card debt.
“I need to pay off my debt as fast as possible,” she declared as she took another bite of her eggs benedict.
“I notice you don’t have any savings,” I replied. “I really think we need to figure out how to prioritize savings, even before working on paying down your debt.”
She put down her fork. “My goal is to pay off my credit cards in a year. I need to pay them off in a year.”
I asked her the question I ask every client who I deliver this seemingly backwards advice to. “How long have you been trying to pay down your debt?”
Long pause. “Eleven years.”
I told her it might be time to try something different, and she agreed to set up a savings plan.
One of the biggest insights I’ve learned working with Brunch & Budget clients is that the best way to pay down debt is to save.
What usually happens when you try to pay off credit card debt
Getting into debt can happen in a flash. You charge some travel expenses, or an unexpected family emergency comes up, or (and we’ve all been here!), you get really used to swiping your card because you don’t have to check your bank balance.
You keep throwing all your extra money to pay down the balance, which leaves you with nothing to spend until your next paycheck, so you use your credit card.
Then comes the month where you can’t pay down the full balance, so you let it carry to the next month. Another month passes like this, then another.
At some point, you hit your credit card screw-it number and just start charging everything to the card. I remember when my husband and I were about $12,000 in debt. I bought a sandwich with my card, thinking, what’s another $15 going to change?
Whenever you get a tax refund, bonus, or other windfall, you throw it at your debt, thinking this will give you the momentum to finally pay it down, but it feels like it’s always going into a black hole.
Why this happens
Our debt is a reminder of our past mistakes. It’s why we feel an urgency to get rid of it as fast as possible and also why we feel so much shame and embarrassment around it.
The system is designed for you to have easy access to consumer credit that is difficult to pay off because the interest charges are so high. Layer in a splash of shame, a pinch of regret, and a dose of personal responsibility, and you can see how quickly you can get buried in debt.
I was already a financial planner when my husband and I got into five-figure debt and I realized the best way to make clients feel less shame was to let go of my shame around it.
Let’s try something different
We get so focused on trying to take care of the debt that we forget to take care of ourselves, too. When you don’t have savings and an unexpected expense comes up, the expense goes right on the credit card, and you’re back in the same debt cycle you were trying to get out of.
Having money in savings is the financial equivalent of putting on your own oxygen mask first.
Insider’s Featured Savings Accounts
2.35% APY (as of 10/27/2022)
Learn more
On American Express National Bank (Member FDIC)’s website
5 steps to successfully paying down your debt by saving
1. Determine a savings floor you want to reach before you put any extra payments toward debt.
This could be $1,000, one month’s rent, one paycheck’s worth of savings — whatever amount you choose, make sure it’s meaningful and feels attainable in the next three to four months. For instance, if your savings floor is $1,000, can you put $250 a month away for the next four months?
2. Reduce your monthly debt payments to minimum payments until you hit your savings floor.
This is going to feel the most counterintuitive because the rule of thumb you’ve had drilled into your head is to “never pay just the minimum.”
3. Once you’ve hit your savings floor, split the amount you’ve been putting into savings between your savings and your debt.
For instance, if you’ve been putting $250 per month away in savings, put $125 towards savings and $125 towards the credit card debt.
4. Decide on a debt pay-down strategy
Choose something, like the debt snowball method, that you can easily maintain or automate so you minimize how much you’re thinking about the debt.
5. Don’t put every windfall towards your debt.
When you get a windfall like a tax refund or bonus, put at least half the amount into savings before you get tempted to pay down your balance.
The most important thing to remember while you’re paying down your debt is that your debt does not define you. The more you can let go of the debt feeling like a burden or albatross, the more you can free yourself from it. Let’s get shameless about our money, starting with our debt.
