How To Improve Your Budget to Pay Off Debt

Jen SmithBudgeting, Personal Finance25 Comments

budget to pay off debt

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Making your first budget to pay off debt can be scary. It’s not as simple as assigning percentages because every person’s finances are different.

But the results are in and budgeting is a necessity to achieving your financial goals. Sure you can get by without a budget but you won’t get ahead without one.

My husband and I have been budgeting together since before we got married and it’s set a foundation for us to be able to pay off over $64,000 over 18 months.

There are a ton of methods, spreadsheets, printables, etc. to create a budget, but I wanted to find a way to help people visualize where there’s room for improvement in their budget.

There are four groups so being the clever person I am I’m calling it the group method. The gist is you prioritize your spending from most important to least important and find ways to save on the essentials while cutting out the nonessentials.

You’ll spend 3-4 months getting your budget down to where you want it. Every month this method will help you improve your budget. You’ll put more towards your emergency fund or debt until you’re living on a sustainable bare minimum.

Sounds like a blast yeah!?

Even if it doesn’t sound fun it’s essential to pay off debt quickly. You’ll never make a perfect budget and you’ll rework your budget several times every month so make it easier on yourself with these steps.

1. Record Your Regular Income for the last month

Go into your online banking or budgeting app and filter to see only income for the past 30 days. If your income fluctuates seasonally you can look back at what you made that month last year and use that amount.

If you have an irregular income you can also record your income for the past 90 or 180 days and divide by 3 or 6. Decide what’s right for you.

Leave out tax refunds and non-predictable bonuses. Those can be a great boost to your debt snowball and a little respite from your strict budget but you shouldn’t count on them.

2. Categorize Every Purchase From the Last Month

Write down everything, even one-time purchases. Don’t leave anything out. Be completely honest with yourself and your spending. It’ll be a little embarrassing but it means you can see improvements quickly!

You can categorize your transactions in a budgeting app or record them on paper in 4 groups.

Group 1:

Housing & Utilities
Basic Needs- Hygiene products, work clothes, school supplies, prescriptions
Transportation- gas, insurance, and sinking fund for maintenance & renewals

These are your non-negotiable expenses. You can save on them but you cannot eliminate them – even if you want to.

Group 2:

Cell Phone

These aren’t basic human needs but in the 21st century, you can’t really live without them. The thing that separates them from group 1 is that you can do with the bare bones version of each while paying off debt.

Group 3:


Emergency fund or sinking funds
Debt Payments

Most people will get to this group just fine after paying for all their needs in groups 1 and 2. But if for some reason you’re in the minority that cannot, stop here and work on decreasing spending in the first two groups while increasing your income.

As you work on improving your budget to pay off debt by saving money on expenses in the first two groups you’ll put all those savings right here.

Our saving savvy and side jobs allow us to put 60% of our income towards debt every month. You may not reach that or you may far exceed it but you’ll surely improve every month as long as you’re focused.

Group 4:

Eating Out
Personal Spending

These are items that can be totally eliminated. Doing without any of these for a period of time is doable but to be sustainable you’ll want to cut back on them slowly.

As you become a better budgeter and are more motivated to pay off debt, you’ll be able to part with a lot of expenses you once thought necessary. A few of mine include Target shopping sprees, eating out for lunch, and laser hair removal.

Don’t laugh, yours will be just as funny some day.


3. Improve Your Zero Based Budget

Subtract each group total from your income. Any extra positive leftover can go to debt and you can pat yourself on the back.

Start with spending 10% less than what you spent last month. Whether that’s cutting it all from one group or spreading it out, subtract 10% from your total and make your improved zero based budget from there.

When you’re looking at where you spend your money it’ll probably be pretty clear where you have room to spend less. That’s the beauty of writing it down, it’s never as bad as you think it’s going to be but there’s always room for improvement.

4. Save and Shave

Aim to cut your spending by 5% in groups 1 & 2 and 10% in group 4. You’ll save more and more every month as you become comfortable with different services and make lifestyle changes.

My motto is, save on the things you need to buy and shave off the things you don’t. There’s always room for improvement even for the most seasoned frugalistas out there.

  • Use Blink to save on prescriptions.
  • EyeBuyDirect to save on prescription eyewear.
  • Energy saving methods like low-flow showerheads to reduce your utility bill.
  • Sites like for dining deals.
  • Groupon and LivingSocial for deals on activities.
  • ThredUp for nice secondhand clothing at steep discounts from retail.
  • Take advantage of free trials at gyms.
  • Refinancing your student loans to a lower interest rate can save you thousands. I like LendEdu to check refinancing because it collects rates from all the best companies.
  • If you’re renting consider moving closer to work or further from the city. It could save you hundreds and make a big dent in your debt.
  • Shopping through Ebates when you have to buy something online will get you cash-back on purchases from virtually any retailer.
  • Changing where you shop for groceries and necessities can save you a lot too. Like ALDI and Wal-Mart instead of premium grocery stores.
  • You can use apps like ibotta and Checkout51 to save at grocery stores and other big box retailers.
  • Using a meal planning service like MyFreezeEasy or PlateJoy can reduce food waste and the urge to eat out.
  • Opt for a high deductible insurance plan.
  • Use healthcare sharing to save big time on health insurance.
  • See if you qualify to be seen at a free community health clinic.
  • Changing your cellular and Internet provider are worth doing for a short period of time for the money it saves you.
  • If you’re a giver like I am you can give your time instead of your money while you pay off debt. See if there are ways you can save your church some money by providing a service for free or volunteering for a beach cleanup.


Budgeting isn’t hard to do it’s just hard to stick to. I’ve found using EveryDollar is the easiest way for me to budget consistently because I’m forced to manually enter transactions every time I make them.

Let me know how you budget to pay off debt and if I can include anything to make budgeting easier for you.

There are so many ways to budget and I am loving this one! It teaches you how to improve a budget to pay off debt faster!

25 Comments on “How To Improve Your Budget to Pay Off Debt”

  1. I love this! I’m always looking for new ways to save and will definitely refer back to your post – especially the grouping method. Thanks!

  2. I have been thinking about ways to get back on track with our budget. We went upside down during our high risk complicated pregnancy involving many hospitals stays and excessive amounts of doctor visits. Thanks for these tips. Hopefully they can help us get back afloat

    1. You can never plan for stuff like that, it’s such a bummer. But as long as baby’s ok it’s worth it! And it shows how important an emergency fund is to offset that stuff. Good luck to you guys!

  3. What a great list of resources and tips! $64,000 is quite impressive! Congratulations! I know that took a lot of work and sacrifice!

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