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Thinking about the future is a great way to motivate yourself to stick to a debt repayment plan.
When you identify goals that motivate you, it may not seem like as much of a sacrifice to put a few hundred dollars toward eliminating high-interest debt every month. The faster you pay off your balances, the sooner you can enjoy other pleasures in life without the stress of managing debt.
But there's another advantage. Creating a debt repayment strategy requires forethought and accountability so you can successfully pay down a large balance over time, and that success can help you establish good financial habits.
And, as it turns out, you also need the very same skills and habits to save money over time, too.
Below, CNBC Select spoke with Bridget Todd, head of trainer development at The Financial Gym to learn how the skills you need to become debt-free can actually help you kick-start your savings. She explains the importance of automating both your debt pay off and savings, and she shares tips on how to start building your emergency fund.
Whether you're paying off your credit cards with a debt consolidation loan or simply put your bills on autopay for an amount that works with your budget, paying off debt can teach you a lot about how to set aside money every month.
If you're putting, for example, $500 per month toward debt repayment, then you've already mastered the discipline it requires to put that money into a savings account.
It's all about consistency, says Todd: "One of the best things you can do is to automate your savings." And it's easier than you think. By putting aside only $20 per week you can save $1,000 in a year.
But if you've already been paying a monthly debt bill that's well over this $20-per-week amount, you've probably built the savings muscle without realizing it and have proven to yourself that you can find room in the budget to save when the debt is gone.
Once you pay off your debt, take that payment amount and redirect it to your savings account using direct deposit or automated transfer. Todd recommends setting up an automated transfer directly from your checking to your savings on the day you're paid.
"Remember, you weren't using that money for spending before, so you don't need to spend it now!" she says.
Having a financial plan in place before you begin paying off your debt will keep you on track and focused, says Todd, who suggests you should have a goal you're working toward and set specific dates for your goals when possible.
"Paying off your consumer debt is a key part of planning for your future and will give you financial freedom," she says.
So while debt repayment isn't the most enjoyable process, being diligent in the short-term can bring about significant long-term results.
"Your future self will thank you for making smart financial decisions now," Todd says.
When someone is finally debt-free (at least from consumer debt), their number-one focus should be an emergency fund.
"A fully funded emergency savings is six months of total expenses saved in cash, preferably in an account earning at least 1% interest," Todd explains.
Unlike traditional savings accounts, high-yield savings accounts come with higher interest rates, helping your money grow even faster thanks to compound interest. The higher your annual percentage yield (APY), the better return you get compared to a traditional savings account, which averages about 0.06% APY right now.
The Marcus by Goldman Sachs High Yield Online Savings ranked best overall on CNBC Select's list of best high-yield savings accounts. And if you want to open a new checking/savings combo, Ally Online Savings Account is a good choice since account holders can take advantage of additional benefits when they also have an Ally checking account, including easy no-fee ATM access and quicker transfers from checking to savings.
Once you build up a fully-funded emergency savings account, you can focus on saving for other priorities such as purchasing a home or maxing out your retirement.
Saving and paying off debt require very similar skills. While digging out of debt is tough, it's helpful to know that you're learning habits that will translate to you growing your net worth over the long haul. When you're finally debt-free, kick-start your savings by putting the same amount of money from your budget into a high-yield savings account.
- 3 to 6 months of savings might be 'tried and true wisdom' but this expert has advice if you're living paycheck-to-paycheck
- High-yield savings account rates are dropping, but they can still earn you over 16X more money than the national average
- These are the 3 best uses for a high-yield savings account
Information about Marcus by Goldman Sachs High Yield Online Savings and Ally Online Savings Account has been collected independently by CNBC and has not been reviewed or provided by the bank prior to publication.
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