9 ways to save while paying off debt

A recent report from the OECD found that Australians have one of the largest household debts in the world. 

So, it’s no surprise that a lot of us feel like we will never get out of debt. But learning how to make your money work for you and still managing to save could make a big difference. So below, we've outlined a few ways you can create savings while paying off debt.

Read the OECD Report.

1. Review your debt and determine what to pay off first

When you're assessing your financial position, you first need to look at your different types of debt. The most common types of debt are credit card debt, high-interest personal loans, vehicle financing, HECS-HELP loans, and mortgages. You should focus on paying off high-interest debts first, since they are the ones increasing what you owe the fastest.

2. Review your household budget

If you don't have a household budget it’s not hard to create one, simply review your bank statements for the last few months and put everything into a spreadsheet. Now that everything is in the one place you can categorize your spending. Your budget should include fixed expenses (mortgage payments or rent, bills and transport) and the money you'll set aside for other expenses.

3. Eliminate unnecessary spending

When you review your spending, you'll probably find unnecessary transactions (ahem Uber Eats). Identifying this unnecessary spending and adding it up will show you how much money you could put towards saving. Of course, you don't want to feel like you're depriving yourself, so make sure you set aside a small portion of your money to enjoy yourself while still living within your means.

4. Pay yourself first

Paying yourself first was a principle made popular in recent years by Robert Kiyosaki in his book, ‘Rich Dad, Poor Dad'. To pay yourself first, set up an automatic savings transfer to move 10% of your income straight to savings each payday. Once you've built up some savings, you could look at investing them in something like a balanced portfolio of shares which will grow over time. But this is a long term strategy, and it’s always best to seek professional advice before doing something like this.

5. Use credit cards carefully

Make sure you're using your credit card carefully and paying it off in full each month. It might seem harmless to pay the minimum, but the interest can quickly stack up and undo all your hard work.

6. Paying extra on your mortgage

A mortgage is probably going to be the biggest debt you’ll ever have, and any extra you can pay towards it each fortnight can pay big dividends over the years. As little as $100 extra each fortnight on a $400,000 loan over 30 years could save you $33,933 and 5 years!* Many home loans have a free redraw facility, which means you can withdraw any extra money you’ve paid into it if you need. Or if you have a 100% offset account then you can stash your extra money there. Either way, extra money paid into your home loan can be a big help for your financial future.

*Based on a $400,000 home loan taken out over 30 years at a rate of 2.69%pa, comparison of 3.12% pa, and with fortnightly repayments.

7. Pocket change savings

Round up your transactions and save the spare change with our Mobile Banking App. Whenever you buy something with your Credit Union SA Visa Debit Card, you can choose to round up your purchases and put the spare change into another transaction or savings account. By building savings habits into your day-to-day, over time you’ll see smaller amounts begin to add up and the cents eventually turning into dollars.

8. Looking at the numbers - how you can create savings while paying off debt

Let’s look at an example. Jessica's take-home salary is $5,000 per month. She sets up an automatic monthly transfer of $500 to her savings account. At the end of year two, she has $12,000 saved. If Jessica takes her savings balance, invests it in a low-cost fund returning an average of 4% per annum and continues depositing $500 per month, she will have a balance of approximately $91,515 after ten years. Over this time Jessica will have continued to pay-off her debt, and she'll have built up a healthy nest egg.

This is an example only. However, you can calculate your own figures using ASIC’s Money Smart Compound Interest Calculator.

9. Consistent small actions over time lead to big results

The hard thing about debt is you can feel like you'll never be in a comfortable financial position. But small, consistent actions over time can pay great dividends in the future. Everyone's financial situation is different, so make sure you speak to a financial adviser to discuss your unique situation and put together a strategy.