Budgeting to Get Out of Debt
The feeling of not having enough money to pay your debts can be stressful and overwhelming because money and debt inherently involve emotions. But a budget—and the act of creating a budget—can help you step back, evaluate your situation, and reduce the stress of money management. Simply taking action can help to calm the nerves.
The Role of a Budget
If you’re struggling with debt, a budget can be your way out of the woods. It sets firm rules for what you can do with your money, and it gives you a tangible way to chart your progress. By removing the guesswork of where your money goes, it tells you when you’re on the right path—and when you’re not.
Once you’ve figured out where your money is going, you can decide what you might like to change to meet your goals.
How to Get Started if You’ve Never Used a Budget
Setting up a budget isn’t difficult if you have the right tools, but it does take some thought. If you don’t understand and buy into your reasons for creating a budget, you may have a hard time maintaining one. Our suggested approach includes the following steps, outlined in MMI's Ultimate Guide to Creating a Budget:
Identify your why
The best budget begins with a clear, meaningful reason for doing a budget in the first place. What’s your why, and why now? Make sure it’s something you care about – and be as concrete as you can. It could be getting out of debt. It could be saving for your dream vacation. It just needs to be well-defined, meaningful, and motivating.
Set your priorities
Separate from your budget goals, what’s most important to you? What makes day-to-day life fun, rewarding, and meaningful? Which activities or hobbies are most important? Determining your priorities helps you make hard choices more easily. In other words, if something rises to the top as a priority, it comes first. Basing your budget and spending around your priorities makes staying on track much easier.
Track your spending
It’s best to figure out where your money is going before you change anything about how you spend it. For example, maybe you estimate your grocery bill to be a certain amount, but it turns out you rely on take-out food deliveries more than you realized. Accurate tracking is the only way to see where your money goes.
Choose your method
What budgeting method works best for you? Pick the style that you think you’ll have the easier time sticking with. MMI’s Ultimate Guide spells out the different budgeting styles, including the 50/30/20 Rule, Zero-Sum Budget, Anti-Budget, and Money Flow. Take a look at them to see what will work for you. If you’re tracking to the penny, one of the first two might be best.
From there, choose your budget tool. It could be a simple spreadsheet or an app like Mint, You Need a Budget (YNAB), or Digit. Pay attention to any subscription fees. For a spreadsheet template, do a simple Internet search and decide which one looks good to you.
A Few Other Budget-starting Secrets:
It’s not always easy to figure out where to cut back or make room in your budget when attempting to slash debt. Take a look at these low-effort ways to cut back on spending, including “batching” your shopping trips to reduce spending exposure, tallying your online purchases before hitting “checkout,” and reviewing your recurring expenses regularly.
Paycheck budgeting is a granular strategy for budgeting each paycheck. A two-week budget might work better for you. Explore these budget secrets for other tips.
How a Budget Helps with Unexpected Expenses
Clear priorities are the cornerstone of a good budget. The most important expenses come first—core human requirements like shelter, food, and healthcare.
But a budget can also make unexpected emergencies easier to navigate because your immediate financial responsibilities are already spelled out. You have all the budgeting information you need at your fingertips to make an informed decision about, for example, a sudden car repair.
To get the money for the repair, you can see where to cut back. It’s possible that you may need to fall behind somewhere, but at least you see everything clearly. That makes the unexpected expense decision easier to map out.
How to Break Bad Money Habits
Sometimes we do things that aren’t necessarily bad one or two times, but over time they add up and ruin our best budgeting intentions—such as ordering take-out several times a week because we didn’t shop over the weekend. Habits that deviate from your budget are bad money habits. But don’t feel guilty! Consider these tips:
Don’t sweat it too much
Habits are psychological—they’re patterns that develop subconsciously over time. Feeling bad won’t help you break a habit. Instead, focus on creating positive change.
Consider what triggers the habit
Lots of people stress shop. But everyone’s triggers are different – it could be anything from your emotional state to a specific time of day to shopping with another person who frequently overspends. Try to identify when the habit kicks in.
Identify what you get from the habit
Does stress shopping make you feel calm? Does it trigger a sense of belonging or purpose? If you do something that you consider “bad,” you’re likely getting something out of it. Try to figure out what that positive return is.
Experiment with alternatives
For example, maybe your relationship with your mother stresses you out. You notice that when you talk to her on the phone, you open Amazon and fill the virtual cart. What could you do instead—for free? Yoga? Exercise? Fill the cart and cancel the order? Try to find something that gives you a similar response but doesn’t involve your credit card.
If you’re still struggling to find room in your budget for lingering credit card debts, a debt management plan from MMI may be the perfect solution. With huge interest rate reductions on most major credit cards, DMP clients save thousands on average and are out of debt in less than five years. Start your free, no obligation review to see how much a DMP can save you.
