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How to Save Money While Dealing with Debt

By Savings Pinay

Let’s face it, having debt can easily throw you off of your momentum when it comes to saving money. Whether you got the debt due to credit card misuse, a personal or family sickness, loss of job, or because of overspending, it is a financial crisis that must be dealt with as soon as possible.

But what if you want to save money while dealing with debt?

This is a good question that one of our Komounity members sent over to our email

In this post you’ll learn the following: 

  • How to evaluate your debt 

  • Step-by-step procedure on how to manage your debt 

  • Helpful tips on how to save money while dealing with debt 


First things first, evaluate your debt! 

Don’t let your debt overwhelm or paralyze your ability to save. With commitment and financial discipline you can overcome your financial obligations while still building a safety net for your life. 


The first step you need to take is to evaluate your current debt. Are they mostly good or bad debts? To put simply, there are two types of debt –  good and bad debt.  


  1. Good debts are considered as those that can possibly generate more income for you and increase your net worth (i.e. getting a loan for a condo unit you’ll rent out or starting a business) 

  1. Bad debts are the dangerous ones. This includes high-interest debts  from credit card or personal loans for items that easily depreciates in value. A clear example of this is purchasing an expensive laptop that is out of your capacity to pay. It may seem doable for now but if you add another and pay other items with your credit card or through personal loan, you may be caught in a bad financial situation. You might need to assess your priorities. 

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A guide to getting out of debt 

Now that you have successfully evaluated your debts, let’s move on to the different steps and strategies you can do in dealing with your debt. 
Step 1. Write all of your debts down: Seeing your debt on paper may cause emotional distress but it’s a must to write them all down. From good debt to bad debt, smallest to largest debt, write them all down in a sheet of paper or an online notepad. 
Step 2. Know your debt-to-income ratio 
Debt-to-income ratio is an effective way to measure an individual’s ability to repay debts. It is the result of all your monthly debt payments divided by your gross monthly income. Knowing your debt-to-income ratio will help you assess if your current level of debt is manageable. 
An ideal debt-to-income ratio is between 10-20%. If your debt-to-income ratio is higher than this percentage, it means you are incurring too much debt for your income. This will cause a financial loophole in the long run. 
The formula for calculating debt-to-ratio goes like this: 

Income - Debt Ratio

Here’s an example of an ideal and not idea income-debt ratio: 

Income - Debt Ratio: Examples

If you have a higher debt-to-income ratio, don't worry. Try to follow the tips in the next section!

Step 3. Choose a debt payment method
There are two debt payment methods you can use – the Debt Avalanche Method and the Debt Snowball Method. Both were introduced by Dave Ramsey, a well-known finance author in the US. 
Debt Avalanche is paying off the most expensive debt first. Get rid of those that accumulate higher interest rates for you. Doing this approach will  give you more money you can have to pay down the rest of your debt. 
Debt Snowball is the complete opposite of debt avalanche. Here you will tackle the smallest debt first until you’ve completely paid all of your debt at last. Paying off your smallest debt will allow you to feel quick wins on your debt payment journey. 

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Tips to save money while dealing with debt 

Now that I’ve laid down a get-out-of-debt plan, let’s now implement helpful tactics so you can save money while dealing with debt. Remember: paying off debt is important, but so is building your savings.  


  • Create a budget plan: A budget is a fundamental approach in personal finance. It allows you to know where your money should be spent. The most crucial thing here is that your budget includes your debt and savings. Check this article for more money hacks. 

  • Use your bonus wisely: A faster way you can save money and decrease your debt is to spend your bonus wisely. Forget buying a new television or planning a vacation when your income increases; use the extra money to pay off debt or divide it equally between additional savings or payment to what you owe. 

  • Automate it!: Whether it be your savings or debt payments, make sure you automate it. I call automation the magic ingredient in building wealth. Do not let yourself have too many options on where your money goes. Set up automatic fund transfers from your payroll account to your savings account.  

  • Negotiate with your creditors: Be proactive in terms of dealing with your debt and try to negotiate for a lower interest rate. For example some merchants will give you longer payment terms or provide you with lower interest rates. You can now save the money you’re supposed to pay for the item and place it on a high interest savings account momentarily. *wink* Komo *wink* 

  • Decrease your expenses: By lowering your expenses is an effective way, you can save while dealing with debt. Here are quick expense cuts that worked for me: 

    • Find out what monthly subscriptions you can give up for now so you can deal with your debt. Perhaps you can downgrade your plan or find a free version instead.  

    • Decrease your expenses by lowering your monthly utility bills like electricity, gas, and water. Small decrease in your monthly bills will help take hold of your debts faster and open up more room to save money for the future. 


  • Increase your income: Same as decreasing your expenses, having additional sources of income will create some relief with your financial situation. The truth is you can only stretch as much with your current income. Aim to make more money from starting a side hustle and use all of the extra income to free yourself from debt quicker. 

  • Build a baby emergency fund first: With debt on your side, building an emergency fund is way harder. You may want to save at least a month worth of your monthly expenses first, but from the given example, it will be easier to save your first Php 15,000 as an emergency fund and call it your baby emergency fund.

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In conclusion 

Your ability to save money while dealing with debt will depend on the situation you are in. It’s important that you have a full assessment of your debt so you can come up with a strategy to get rid of your debt. 
Now if you’re serious about saving money for the future, then you should consider opening a high-yield savings account now to ease you into your debt-buster plan. Having a dedicated savings account that earns better interest than normal will help you maximize your money. 
Opening a high-yield savings account in the Philippines is relatively easy. You don’t even need a huge amount of money to get started. Personally, I use Komo which is an exclusive digital banking service that allows you to open and manage your account completely online. Komo offers an attractive up to 2.5% annual interest rate, which makes your savings earn better. It also provides you with free fund transfers, withdrawals, and bills payment. Seems like an easier way to automate debt payment as well! 
Get Komo on the Play Store, the App Store, or the App Gallery

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