Skip to main content

How to Manage Debt Without Sacrificing Your Financial Goals

By Rebecca Lake

Published July 14, 2023 • 4 Min Read

When you have debts to repay, giving attention to your other financial goals can be challenging. You might be putting a large chunk of your income toward student loans, credit cards or other debt, leaving you with little money to stash away in savings. Creating a debt management plan that fits your financial situation can make it easier to strike a balance.

How to pay off debt without sacrificing financial goals

Paying off debt and setting aside savings are at opposite ends of the spectrum financially, but it’s possible to do both at the same time. Here are some of the best ways to approach debt management without putting saving on the back burner.

1. Set your priorities

When trying to save and pay down debt, it’s important to understand your priorities, especially if there’s only so much money available in your budget. This is where it helps to take a personal inventory of what matters most.

For example, your priority list might look something like this:

  • Pay off $10,000 in student loans

  • Save $5,000 for an emergency fund

  • Pay off $3,000 in credit cards

  • Save $20,000 for a down payment on a home

  • Contribute 10% of your income to a Registered Retirement Savings Plan (RRSP) each year

Of course, your list might look totally different, depending on what type of debts you have and your goals. This is designed to get you thinking about what you want to focus on first, second, third, and so on.

2. Fine-tune your budget

When you have competing goals that include paying down debt and saving, your budget and spending habits can hold the key to your success. The more money you can free up in your budget, the easier it can be to chip away at your debts while funnelling money into a savings account or retirement account.

Here’s a simple formula for reviewing your budget.

  • Separate essential expenses, such as housing, utilities and food, from nonessential expenses

  • Go through your nonessential spending line by line and ask yourself whether it’s really something you need to maintain a basic standard of living. If not, cut it out

  • Do a second review of nonessential expenses to see if there’s anything else you can do without

  • Revisit your essential expenses to look for any opportunities to save

You might be surprised at how much you can eliminate from your budget if you’re committed to repurposing that money for debt repayment or savings.

3. Choose a debt management approach

There’s more than one way to pay down debt. The debt snowball, for instance, advocates putting as much money as possible toward your smallest balance each month while making minimum payments to everything else. Once you pay off the first debt, you roll its payment over to the next debt on the list and keep going until they’re all paid off.

The debt avalanche works the same way, except that you focus on the highest-interest debt first. The goal of this debt management strategy is to maximize interest savings.

Aside from those options, you might consider:

  • Applying for a 0% balance transfer offer to reduce credit card interest rates

  • Refinancing private student loans or a mortgage if you own a home to lower your rate

  • Consolidating debts with a low-interest personal loan can potentially reduce monthly payments

The most important thing to remember when it comes to paying off debt is to choose a plan that fits your situation and needs. It’s also a good idea to consider your potential savings and how you can put that extra money to use. If you want to explore debt consolidation options, it’s easy to calculate your interest savings online.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

Share This Article


Credit and Debt