You want to feel in control of your money, especially when you have bills like credit card debt or personal loans. Sometimes, thinking about a “budget” can sound like a chore, or like it means you can’t have any fun.
But resist the urge to write off budgeting. When you’re working your way out of debt, a budget is actually your best tool for feeling in charge of your money!
Let’s walk through creating your own debt-payoff focused budget. Feel confident about paying your bills and achieve a feeling of overall peace about your finances. It’s about making your money work for you, so you can live with less stress (and more freedom!)
Why Your Budget is Your Secret Weapon
Your budget is more than just a picture of your money. It helps you direct your money to attack your bills and build a better financial future.
Where does your money go?
Your budget helps you see clearly how much money comes in each month and how much goes out. Seeing the lifecycle of your paycheck helps you find money you might not even know you have — a perfect opportunity to pay off bills faster.
Where is your debt hiding?
When you track your money, you can easily spot places where debt can creep in. Maybe you use your credit card for small purchases without thinking, or perhaps all using a Buy Now, Pay Later program is costing more than you’d initially imagined.
Creating Your Debt-Busting Budget
Step 1: Gather the Data
Collect your paystubs, your bank statements and all your bills. Ensure you find all your bills for debts too, whether they’re credit card, personal loan, car note, mortgage or any other open account.
Step 2: Know Your Income
Figure out how much money you can count on to earn each month. This is your “take-home pay” after taxes. If your pay changes sometimes, try to figure out your average pay over the last few months.
Step 3: List Your Fixed Bills
These are the bills that are usually the same amount every month. Write down:
- Your rent or house payment.
- Your phone bill, internet bill, and other regular services.
- Your car insurance or other insurance payments.
- All the payments you make on credit cards, personal loans, student loans, etc.
Step 4: Track Your Spending
These are the costs that change each month but are still important. You need to watch these carefully.
- Food: How much do you spend on groceries, eating out or getting food delivered?
- Gas/Travel: How much for your personal car, rideshare or bus tickets?
- Fun Money: How much do you spend on movies, hobbies or going out?
You can track these using a notebook, an app on your phone or a simple spreadsheet. Tracking helps you see where your money goes without you even thinking about it.
Step 5: Find Your “Extra Money” for Bills
Now for the fun bit — add up all the money you make in a month. Then, take away all the money you spend on your bills and other costs. The amount left over is your surplus.
This is the secret sauce to getting out of debt. Use these excess funds to tackle your most annoying or distressing debts first. Even if you’re in a debt consolidation program — like this excellent service — devoting extra funds can help you expedite a process already designed to get you debt-free faster. It’s like supercharging your payments!
Food for Thought: Importance of Honesty
Your budget works best when you are honest with yourself. It’s okay if you spend more than you thought in some areas. The goal is just to see the truth about your money, so you can make better choices.
Step 6: Find Places to Save
Look at your budget. Can you find small ways to spend less?
- Check your TV shows or apps: Are you paying for things you don’t watch or use?
- Plan your meals: Cooking at home more often and planning what you buy at the store can save a lot on food.
- Free fun: Look for fun things to do that don’t cost money, like going to the park, reading books from the library or having game nights at home.
- Travel smart: Can you carpool sometimes, or find ways to save on gas?
- Check your insurance: Sometimes, you can find ways to pay less for car or health insurance.
Step 7: Go on the Offensive
Any extra money you find should go straight to the bills that cost you the most (like credit cards with high interest). This helps your debt go away faster, and before you know it, you can snowball the payments you no longer need to make into paying down other outstanding debts even more aggressively.
Step 8: Stick to Your Plan
Abide by your budget — the payoff will be apparent sooner than you’d expect. As your bills shrink, your confidence will grow: And you’ll feel more motivated than ever to get debt-free.
Beyond Payoff: Budgeting for Lasting Freedom from Debt
Your budget isn’t just for paying off bills. It’s also your tool for staying debt-free and building a strong financial future.
- Once your bills are paid off, keep using your budget! Hold yourself accountable to avoid racking up new bills.
- While you’re paying down debt, don’t neglect your emergency fund. Your emergency fund is money saved just for surprises, like if you lose your job, your car breaks down or you have a big medical bill. It’s your main protection from having to use credit cards when unexpected things happen. Aim to save enough to cover your important bills for 3-6 months.
Getting Help When a Budget Alone Won’t Cut it
Sometimes, even with a great budget, your bills can feel too big to handle alone. That’s okay! Many people get help, and it’s a smart thing to do.
- Consult with a certified financial professional who specializes in personal finance. A consultation with them may be worth a lot of time, effort and money in the long run!
- Debt Consolidation. If you have many credit card bills or personal loans, debt consolidation can be a big help. By lumping your outstanding unsecured debts into one, lower monthly payment, you can build flexibility back into your life — and get debt-free in as little as 24-48 months.
Want to learn more? Our experts can help.