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In Debt, but Still Want to Save? How to Make It Work.

With the stress of repaying debt weighing on your mind, it can feel impossible to save for your future. A recent study found that 26% of Canadians holding credit card balances and other loans say their debt is a major source of stress for them. Meanwhile, 42% are minorly concerned. Putting all expendable funds towards debt repayment may seem like the best course of action. Is it really the best option though? Without a solid savings plan, you run the risk of digging yourself even deeper into debt — should unforeseen expenses arise. By following the steps below, you can combine the two and build toward a life of financial freedom.

Step 1: Gather Data

The first thing you want to do to get your money in order is collect information regarding your cash flow. This would be your income and monthly expenses, including rent, utilities, groceries and minimum debt payments. Be sure to consider all recurring inflows and outflows of cash. Once that’s done, list all the debt you owe. Plus, any savings you might already have. This will give you a clear picture of how much of your income goes to necessities and how much is left to be used elsewhere.

Step 2: Compare Debt vs Saving

It is important to know when to prioritize putting money towards debt and when it’s better to save it. As a rule of thumb, paying off debt with high-interest rates typically takes precedence. Whereas having sufficient savings and an emergency fund is more urgent than settling low-interest debt.

Before the pandemic, many of us had never experienced a financial crisis and therefore never felt the need for a rainy-day fund. Lockdowns and job loss led to many Canadians relying on the government for help or going into debt because they didn’t have emergency savings. This is especially true for low-income households. 

Terrifyingly, many Canadians lost the ability to support themselves. The stress of financial uncertainty also caused adverse effects to the mental health of people all over the country. By making savings a priority, you prevent yourself from collecting even more debt in a future crisis.

Step 3: Set Your Goals

Your very first goal should be to create a buffer fund. An emergency fund is kept separate from the rest of your money. It is meant to cover only a short period of financial insecurity, ideally3 to 6 months’ worth of your expenses. That being said, It is recommended to start with either $1,000- or one-month worth of rent or mortgage payments. This helps make unexpected financial setbacks more manageable. It should be kept somewhere easily accessible and, ideally, earning interest.

Once this money is set aside, you can decide which debts and savings you wish to put your money towards. You can also set other goals depending on your circumstances. For instance, you might want to become debt-free by a certain date. 

Step 4: Make a Budget

Creating and sticking to a budget plan goes a long way when it comes to conserving money. By having a plan for how and where you spend, you are less likely to succumb to the habits that keep you in debt

A helpful strategy is the 50/30/20 approach. By using this, you will put 50% of your income towards your needs, 30% towards your wants and 20% towards savings or debt. If you find you typically spend over 30% on wants, decide what you might be willing to cut back on until your goals are reached.

Step 5: Review Progress Regularly

Keeping a finance spreadsheet is a precise way to track and review the progress you’ve made toward paying off debt and growing your savings. Budget and financial apps make tracking spending easy. They can help keep a record of every transaction and ensure that the information is up to date. These tools can even be used to track which strategies or habits are working and what parts of your plan you need to tweak for the best results. 

Tips For Paying Off Debt

There are two common techniques for paying off debt. The first method, avalanche, is done by paying off your high-interest debt first and working your way down the list. This method usually saves the most money

The other technique is snowball, which consists of paying off the smallest debt first and building up to the largest. The benefit of this method is when people pay a debt in full, it gives them a sense of achievement, thereby encouraging them to clear more.

Both techniques would still require you to keep up with the other minimum payments.

Other methods include:

Balance Transfer

This involves moving the balance of an existing credit card onto a new one with lower interest rates. This lets you save on interest for about 6-18 months. However, a good credit score is likely required to get a new card and you’ll want to read your agreement carefully. Sometimes there are terms in the agreement that make it so that doing a transfer could be less beneficial than at first glance. For example, issuers will advertise a low (or no) interest rate, but when you read the fine print the rate is only available for a certain period of time. If you can’t pay off the debt by the time that period ends, you could end up spending more than if you had stuck with your original card.

Debt Management Program

Debt management programs are a good option for those people that need help dealing with a collection agency. They work by assigning a representative to negotiate a lower interest rate with creditors. Your debts are then consolidated into one monthly payment that the representative distributes for you.

Tips For Saving More

Employer Match

Many employers will match the amount you put into your RRSP or pension up to a certain percentage of your salary. This is essentially free money. Take advantage of it as much as you can.


To go along with employer matching, to the best of your ability, maximize tax savings by using RRSPs and TSFAs.


Deductions on income tax are applied for the year you contribute to the account. This can go a long way to getting you a bigger tax return which can then be used to pay down your debt.


Can be used for a variety of goals. Any investment income earned on your contributions is tax-free. In addition, funds can be withdrawn at any time without penalty.


Set up automatic payments to saving accounts or bills for one less task on your plate. 

Final Thoughts

Trying to build savings for the future while chipping away at your debt can be a daunting task, but you don’t have to do it alone. Feel free to reach out to our experts for further assistance!

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