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5 Steps to Budgeting & Paying Off Debt

financial franny“This is it! This is the year that, along with losing weight, quitting my vices, and going to the gym regularly, I’m going to make a budget and stick to it.” —Financial Franny

Do you often feel let down after the holidays when your mailbox and e-mail inbox is flooded with statements? Take it from me, Financial Franny, you’re not alone. I vowed not to overspend this year, but when those expenses were added to the other debts I accrued—like vacation expenses, new appliances, emergency car repairs—the holidays just pushed my debt into the uncomfortable zone.

I’ve got to do something different, I said to myself. But what’s the best way to tackle this debt most effectively? After doing some research, I learned that making a budget—and sticking to it—is the best way to start chipping away at debt.

Follow the 50/30/20 Rule
A healthy budget contains 50% necessities, 30% on wants, and 20% in savings and debt repayment. They say that if you follow this guideline, chances are good that you’ll have manageable debt, room to indulge occasionally, and savings for your emergency fund or retirement. (I can totally get on board with any budget with a little indulgence built in.)

Your budget can basically be constructed in 5 steps:

  1. Figure out your after-tax income. Include side jobs, alimony, and other sources of income.
  2. Choose a budgeting plan. The best way to see where your money goes is to put it down on paper in columns. Be honest – after all, this is YOUR financial future. You can make your own spreadsheet in Excel, or download this handy budget worksheet.
  3. Track your monthly expenses. Use Tower’s online budgeting tool, Money Management. It’s a great way to see exactly where your money goes every time you swipe your debit card, hit up the ATM, or make a retail purchase. Don’t forget to include utility bills, insurance payments, car payments, daycare expenses, food, dining out, and fun stuff, like new clothes or hobby items.
  4. Automate your savings. Pay yourself first. Make sure you put a percentage away into savings or your 401(k), and then pledge to live on what’s left. You can do it! For detailed information on this method, see the “Pay Yourself First” article in this month’s TowerLine.
  5. Revise your budget as needed. Things happen. Emergencies arise. Car repairs are inevitable. (I just spent $900 on tires for my car.) So your budget needs to be a little flexible, leaving some room for the unexpected.

Tips to keep your budget on track

Cut the waste. Once you figure out your monthly income and “outgo” in #3 above, it’s time to tackle that 30% “Want” category. Getting a handle on debt will require some decisions about what’s frivolous and what’s not. Plus, you need to agree on that with your spouse or significant other. This is where things can get dicey. For example, I feel like getting my nails done every two weeks isn’t frivolous; however, my husband thinks it is. On the flip side, does he really need those golf outings every week?

Some compromising may be in order if your goal is to actually reduce debt. Look for expenses that don’t fit your values and priorities, then cut back or eliminate them. You can save money by reducing impulse buys, cooking more, exploring cable TV options, bagging your lunch, driving a used car—the list is endless.

Get a second income. Many people have a side hustle to make ends meet, pay off debt, or just for fun money. Do you have a special talent that you can do on the side, like writing, editing, photography, home repairs, or painting? There are many possibilities for you to earn a little cha-ching on the side and maybe have some fun in the process. Even if you only put in a few extra hours a week, the additional cash flow can really help build your savings. BONUS TIP: If you’re in the market for some extra work hours consider a position at your credit union.

Tackle that debt

Once your budget is in hand, then it’s time to tackle those bills, but which ones do you pay off first?

  • Tackle higher-interest debt first. Instead of splitting your payments evenly among your creditors, pay off your high-interest cards first, because you’ll pay more in the long run on those cards. Next, remember that there is a high price to pay for being a “preferred member” at your favorite department store. Those $10 reward checks and 30% off coupons might not balance out the average 25.64% retail rate on store cards if you’re inclined to carry balances. Even better, take advantage of Tower’s special Mastercard® balance transfer offer—for one low, easy payment that saves money on interest.
  • Review your budget regularly. Circumstances change. Incomes change. It goes without saying that your budget might need updating over time. You may happily find that your actual numbers are better than you thought, or expenses are being reigned in faster because you’ve changed your spending habits. An easy way to track your spending activity is through Tower’s Money ManagementTM online budgeting tool. You can get a good picture of what’s going on with your money, see cool bubble budgets, and view spending trends over the past year. Check out a demo and learn more!
  • Keep applying extra money toward debt. Pay more than the minimum payment each month on debt, and combine your credit card balances when you can to simplify debt repayment and save money. Did you get an end of year bonus or are expecting a tax refund? Why not put that towards your debt?

Finally, don’t be afraid to reach out for help. Tower has teamed up with BALANCE to provide you financial counseling and education services to help you achieve financial stability. Simply call BALANCE toll-free at 888-456-2227 to speak with a certified counselor, who will answer your specific money management and credit-related questions. Or, visit the BALANCE website for more information.

Resources:,, NerdWallet,,

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