15 Ways To Make A Budget To Pay Off Debt Faster

How to Make a Budget to Pay Off Debt Faster: A Clear Guide

Budgeting doesn't have to be a scary word. Most people think of a budget as being restricting and not allowing you to buy anything or spend money. Yet the reality is that budgeting gives you freedom, because YOU get to choose where your money is going to go, before it actually goes there. Plus, it's a crucial tool for anyone looking to pay off debt. It helps you manage your finances by tracking your income and expenses, and finding out areas where you can cut back on spending. With a budget in place, you can make a plan to pay off your debt faster and achieve your financial goals. Let's dive in!

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Make A Budget to Pay Off Debt Faster

Understanding the Basics

Understanding debt and budgeting basics is your first step to creating a budget that works for you. Debt can be overwhelming, and chances are if you've found me, you've got some debt you'd like to pay off. With the right tools and strategies, you can take control of your finances and start paying off your debt.

The next few topics we'll talk about will include why you want to make a budget, and getting the information you need to make a budget that works for you, and one that will pay down those debts, FAST!

The basics include tracking your income and expenses, creating a spending plan, and setting financial goals, but money is personal and emotional, and if you don't address the personal issues that go along with them, you'll spend your time spinning your wheels and not making any progress with your debt.

But don't worry! It won't take much and you'll have a good understanding of these concepts, and you can start creating a personalized budget that will help you pay off your debt – faster!

Make A Budget to Pay Off Debt Faster

What are your goals for making a budget?

The first step in creating a budget to pay off debt faster is to establish clear financial goals. These goals should be specific, measurable, achievable, relevant, and time-bound (SMART). For example, instead of setting a goal to “pay off debt,” a SMART goal would be to “pay off $10,000 in credit card debt within the next 12 months.”

Whatever your reason(s) are, you need to be able to remember them, so it will keep you motivated. So grab a piece of paper, or send yourself an email and put down your reason(s) for making the budget to pay off debt.

You will need this reminder when times get tough and you want to quit, so make sure you have this posted several places in your house to keep you motivated. This motivation can be a powerful tool to help you get control of your finances and pay off debt faster.

A Man Writing on the Paper

Make A Budget to Pay Off Debt Faster

Assess The Situation

Here is where you are going to start by listing all of your sources of income, including your salary, bonuses, and any other sources of income. Also, list all of your monthly expenses, including rent/mortgage, utilities, groceries, transportation, entertainment, and any other expenses. Categorizing expenses and prioritizing debt payments can help allocate income towards debt payments and cut back on unnecessary expenses.

To make this easier on you, and to help you on your budgeting journey, I've created a free budget workbook that has tracking sheets that will help you find where your money is going. I believe it can help you so much, I'm giving it to you free! Use the code “Groupmember”, and get it ABSOLUTELY free.

Once you have listed all of your income and expenses on the budget workbook sheets, add up your total income amounts and subtract them from your total expenses. If the result is negative, then you will need to find ways to reduce your expenses or increase your income, and we may have a bigger hill to climb. If the result is positive but you need to pay off debt, that makes the job a little bit easier, but there is still work to be done. Don't worry! You can do this!!

Make A Budget to Pay Off Debt Faster

Prioritize The Debts

So far you've posted your reasons for wanting to be out of debt in several places in your house, and you've made a list of all the income and expenses you have in the free budget workbook I've created for you. The next step is to prioritize debt repayment by allocating a significant portion of the income towards debt payments.

This is where you will look at the amounts due for each company or credit card you owe, and find out what just the minimum monthly payments are. To begin this process, you're going to just pay the minimum monthly payment on all debts except for the debt with the lowest balance. Anything extra you have, make or save will go towards the debt with the lowest balance to pay off debt fast!

Make A Budget to Pay Off Debt Faster

Bank Like A Millionaire

In my 20's, I worked at a bank. It was in a wealthier part of our city, and I learned a lot about how different people handle money. The biggest thing I learned was that wealthy people have a lot of bank accounts. I didn't really understand why at the time, but 10 years later as I was trying to figure out how to get out of the mountain of debt married life had brought me, it all made sense. Wealthy people had a lot of bank accounts because they were telling their money where to go! They were being the boss of their money!

If your current bank doesn't offer free checking accounts with no minimum balance, call around and find one that does. You're going to make some banker very happy that they get to open 14 new accounts in one day. Or maybe you'll have 12 accounts, or 16 – whatever works for you.

Make A Budget to Pay Off Debt Faster

Debt Snowball Method

This is where we apply the debt snowball method. There are different ways to pay off your debt. I prefer the debt snowball method. It involves paying off your debts in order of smallest to largest balance. This method can provide a psychological boost as you see progress by paying off smaller debts first. To use the debt snowball method, follow these steps:

  1. List all your debts in order from smallest to largest balance.
  2. Make the minimum payments on all debts except the smallest one.
  3. Put any extra money you have towards paying off the smallest debt.
  4. Once the smallest debt is paid off, use the money you were putting towards that debt to pay off the next smallest debt.
  5. Repeat this process until all debts are paid off.
Woman, Man and Girl Sitting on Snow

You're probably going to say that mathmatically, it makes more sense to pay off the highest interest debt first. This is correct. However, being in debt not just about math. It's also about emotions. It's about the excitement of the purchase, the thrill of buying that vehicle to show to friends and family and the feeling of wanting more for your children so you buy presents and gifts you can't afford.

This is why we pay off debt smallest to largest. You need that emotional high from crossing one debt off your list, FAST! You need to focus on that win so that you can keep motivated to move to get rid of the next highest debt. Those small wins will keep you going and propell you to the finish line to pay off every single debt.

***Pro tip – If you're still not convinced this is the way to go, try it this way for six months, and if you aren't seeing improvement in your debt, you can always go back to the way you were doing it. But you owe it to yourself to try!

From above electronic calculator and notepad placed over United States dollar bills together with metallic pen for budget planning and calculation

It is also crucial to cut back on unnecessary expenses and find ways to increase income, such as taking on a side job or selling unused items. Check out these blog posts where I dig deeper into these topics on how to pay off debt.

Make A Budget to Pay Off Debt Faster

Ditch The Apps

There are many budgeting apps like Mint, YNAB and EveryDollar that you can use to budget with. But I don't recommend any of them.

This may be bold statement, but it's one I've found to be true – ditch the apps. They can be a fun tool to use, but apps are on your phone. More and more, a phone is used to play games, go on social media and it's too easy to get distracted. If you're going to get serious with about getting out of debt, you've got to make time to be focused on just that task.

Apps make it too easy to get distracted. I'm sure you got a notification of a text message, or an email came in, and you got distracted and your brain switched to thinking about something else on your phone, instead of what you were originally doing. It's human nature!

Instead of apps, consider using your computer and pen and paper. I set aside 30 minutes a week to work on all my budgeting and banking things, and then I'm done for the week. It's easy to stay focused because I know I can do it quick, and then I'll be done with the task and go on with my day.

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Make A Budget to Pay Off Debt Faster

Understanding the types of budgets

There are couple of different types of budgets you can do. There is the budget by paycheck method. This is where you decide what bills you are going to pay based on your weekly or every other month paycheck. I do not recommend this method. The paycheck method has you changing what bills you are going to pay, what expenses you have and are going to pay and makes you create a new budget every single time you get paid. That's too much work! More importantly, you're more likely to get frustrated and stop doing it. We don't want that.

I recommend the zero based budget method. This is where you factor in all of your expenses for the year, divide them by 12 and then you pay on them monthly. There are two ways to handle this. The first method is very easy to do if you have a month of expenses in a lump sum to begin with. Granted, most people don't. However, there are a couple of ways you can do this.

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  • Pull from Savings to use as your starter month. Then when you get paid, put that money into a separate account. Label this account – “Holding Account for Next Months Bills” Then on the first of the month, transfer that money out into your individual accounts.
  • Sell some stuff around the house. Once you've committed to getting out of debt and changing your future, you'll want to sell all the stuff you've got laying around that you're not using or don't need. Your focus will be on how to pay off debt, and you'll be ready to sell everything that's not nailed down!
  • Start your first month with less than your actual budget. Don't fund the sinking funds your first month if you're short a little, so you can get started right away.

You can also do a zero based budget with your regular paychecks. Since you've already made the budget, just divide it by two, or however many pay periods you have. Pay your bills first and fund the sinking funds towards the end of the month.

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Make A Budget to Pay Off Debt Faster

Create A Budget

Now that you have a clear understanding of where your money is going, you can add up your income columns, your expenses colums, and you can list your debts lowest to highest. Remember, you're just going to pay your minimum amounts on all your debts while you are focusing on your smallest debt. You want that big win – FAST!

The first thing we did was to make notes In my workbook I gave you to find out where your money went. I have it broken down into multiple different categories. They are this way for a reason.

Now we're going to create your budget to tell your money where you want it to go. No longer will you have to wonder where your money went. You're now going to be the BOSS of your money and tell it where you want it to go.

You want to have sinking funds, or side funds for those things that you don't need every month. If you don't budget for them every month, then you don't have the money for them when you need it and you're likely to end up moving money around, paying a bill or two late and then there are more problems created because of compounding late fees and higher interest.

Do yourself a favor and put those needed funds into your budget each month to save the headache and additional crisis later.

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Make A Budget to Pay Off Debt Faster

Understanding the Basic Categories

Here's the list of categories/funds I suggest:

This top list is for bills that you know you have every month.

  • Mortgage/Rent
  • Gas/Electric/Water
  • Gas for Vehicles
  • Daycare
  • Car insurance
  • Home Owners/Renters Insurance
  • Medical Insurance
  • Cell Phone
  • Student Loans
  • Credit Cards
  • Other Loans
  • Grocery
  • Trash


  • TV/Streaming Services
  • Car Payment
  • Internet
  • Play Money For Each Adult
  • Subscription Services – Amazon, Apple, Spotify, Audible
  • Storage Unit/Rentals/Etc.

Everything above the line is a priority. Everything below the line, is a want. We'll work on lowering those bills and many other ones in another blog post. I've got lots of tips that will help!

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***Pro Tip – Play Money for each adult is a certain amount of money that each adult gets where they can do whatever they want with it. If you have a lot of debt to pay off, this amount could be 10.00 a month, I recommend no more than $100.00 a month.

Since all basic needs and wants are being met, so this is just extra “fun” money. Don't allocate too much to this category. It's meant to be spent on the occasional fun coffee, or a way to save for a special night out.

Make A Budget to Pay Off Debt Faster

Understanding the Sinking Fund Categories

This list is for expenses that you may not have every month. It's important to not overlook this list because this is where you can get into a lot of trouble – the hidden expenses that you don't plan for. Take the amount you think you spend a year for each category and divide it by 12. That's the amount you need to put in each of these funds every month.

For example, let's say you know the plates for your vehicles cost $280.00 last year. You'd add that to your estimated vehicle repair expenses – oil changes, tire rotations, and add $600.00 for estimated repairs you may need. Add more if you have an older car. So your total could be $1100.00 for all of those things. Divide that by 12 months of the year, and you've got about $92.00 a month you want to put into this fund.

Do the same calculation estimation for each of the other categories.

  • Out to Eat / Entertainment
  • Clothing/Shoes
  • Beauty/Healthcare
  • School Expenses – Book Fairs, Party's, Supplies
  • Christmas/Holiday Expenses
  • Birthday
  • Car Repair/Plates
  • Home Repair
  • Medical Expenses
  • Pet Expenses
  • Children's Allowance
  • Children's Activities
  • Adult Activities
Cakes on Table

If you don't have children or pets, you can just skip those accounts, but you'll want to have an account for everything else.

The goal with these accounts that you are planning for upcoming expenses. We know children are going to need new clothes and shoes. You may not need new clothes, but you'll probably need new shoes at least once in a years time. We put a little money into the account or envelope each month, so that when it's time to make those purchases, we already have the money for them.

For the medical expense category, I've got the following posts about how to save in this area. Make sure to check them out here:

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Make A Budget to Pay Off Debt Faster

Make your income and expenses match

Once a budget has been created, it is important to review it to ensure that it is effective in achieving the goal of paying off debt faster. Basically, you want your income and your expenses to match. Since we're making a zero based budget, there should be nothing “extra” remaining that isn't in one of the sinking funds, savings, or paid on debt.

I've created these budget worksheets that you can use to follow the steps I've talked about. If you use the code “Groupmember” you can access them free. It's my gift to you because I want to help everyone reach their financial goals.

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Make A Budget to Pay Off Debt Faster

Answers to common questions

Here are some common questions you may have:

Q. What if I feel like I need a buffer so I don't overdraw my account?

A. I understand the need for security. The last thing you want to do when you're trying to get your finances right is to overdraw your account! Consider using one account only as your “Bill Paying” account. ONLY bills can be paid out of this account. Groceries, gas, everything else is either paid from cash from envelopes, or sinking funds.

Q. How do I know if I should use individual accounts, or cash envelopes for my sinking funds?

A. This is going to be a personal decision. I've done both. When I started, I used all cash envelopes. But as the sinking funds grew, I didn't feel comfortable having a lot of cash in the house. Plus, with the pandemic, so much of what we bought was online purchases, so it just made sense to have the money in individual bank accounts.

Q. How do I keep the accounts sorted so I don't confuse them?

A. Most banks and credit unions allow you to label your accounts with a specific information on their online banking system. I went through and titled all my accounts with their specific sinking fund name. I then use a sharpie and write the name of the account on the front of the debit card for that account.

Q. I don't want to bulk up my wallet/purse with all those debit cards or large amounts of cash.

A. You don't have to! Only carry the card or envelope for the task you need to do that day. If you are going to buy shoes, just bring the debit card or envelope for clothing/shoes. If you are going to the grocery, only bring the grocery debit card or envelope. Not only does this help you not allow yourself to go over budget, but it makes you think about your purchases more thoroughly.

Got a question you'd like to have answered? Join my free facebook group – Simple Money Magic. We cover all things personal finance, how to make a budget to pay off debt and side hustle related. I'd love to have you join us!

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Make A Budget to Pay Off Debt Faster

Regular Financial Reviews

A good rule of thumb is to review the budget every month to track your progress. During the review, it is important to compare actual spending to the budgeted amounts for each category. This will help identify any areas where overspending has occurred and where adjustments need to be made. For example, if the budgeted amount for groceries is $400 per month but the actual spending is consistently closer to $500, adjustments may need to be made to reduce spending in this category.

Finance Review Chart on the White Board

Make A Budget to Pay Off Debt Faster

The next steps

Now that you've tracked where your money is going, and you've created a budget including sinking funds, the next step is to consider reducing your expenses or increasing your income to free up more funds for debt repayment. We'll talk about that in the next post and you'll be amazed how much extra money you can find.

I completely understand the heaviness you feel when you're in debt and you don't know how to get out. My hope is that by giving you all these tools you can follow the steps to find your way out and be on the path of financial security. I'm here for you for any questions you have. I have a free facebook group where you can ask all your questions and post anonymously if you prefer. You can do this! I believe in you!

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  1. Very thorough post. I like that you covered “play” money. It’s important to budget something for that, otherwise the budget is destined to fail.

    Apps do have their purpose as its fun when they show you where you’re under budget or how your debt has decreased.

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