Getting a handle on debt while also paving a path for your financial future can be a challenging task. On one hand, you’re trying to focus on smart saving and spending in order to get out from under common debts, such as student loans or medical bills. On the other, you’re also looking for ways to reach your future financial and life goals.

The good news is that there are several steps and mindset changes that can help you build a base for your finances, rather than merely digging out of debt. The right approach to budgeting and saving can help build a foundation for your future while getting a handle on debt.

The Millennial Financial Paradox

Millennials face unique financial challenges: more than 70% carry some form of non-mortgage debt with an average balance of $117,000.[1] Only a tenth of millennials can say that they’ve never been in debt. The debt cycle is not only significant for millennial-aged workers, it’s also incredibly expensive.

At the same time, however, millennials have a narrowing window of opportunity to make the most of their retirement savings and long-term financial security. Doing both of these things at the same time may seem paradoxical: how can you pay down your debt while saving for the future? Although it isn’t easy to do, it is possible.

Staying out of the Debt Cycle

Large debts with compounding interest are challenging to pay off, especially when unable to pay off at once. This is often the case for people carrying moderate to significant debt; however, making minimum payments isn’t enough to keep your balance from increasing in the long run.

This phenomenon is known as a debt cycle. Debt cycles can occur once you continually borrow more than you know you can repay. When borrowing is the main way you pay for goods and services, you’re risking debts ballooning beyond what you can pay down.

Instead of relying on additional loans or credit card limits to make purchases, consider using funds from a checking account instead. This may take longer than financing a purchase, but you’ll be able to keep out of accumulating debt while trying to pay down your balance. 

How Small Steps Make a Difference

Getting out of the debt trap cycle is only one tactic for helping to build your nest egg while also paying down debt. There are other personal finance tips and strategies that can help you do both at the same time, rather than sacrificing your own long-term stability for the sake of getting a handle on debt.

Practical budgeting tactics can also build your financial confidence. Prioritize paying down high-interest debt before investing, as the interest charges on the debt can quickly accumulate and outweigh any potential investment returns. Taking on temporary debt for education can be a wise investment in your future, as it can lead to higher earning potential and better job opportunities in the long run. However, it's important to manage this debt responsibly and have a plan in place for paying it off.

Building with the Right Foundation

When paying off debt and saving for the future, you have to start somewhere. Modest improvements are better than none, and help to prepare you for a better financial future. A smart approach to debt will help you balance paying off what you owe with investing in your future. If you’re unsure where to start, or want to know more, speak to a PNC banking professional or another professional qualified to offer financial advice.