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How to Build a Budget to Get Rid of Credit Card Debt

September 5, 2022

Illustration of notepad, credit card, budget notebook, and calculator

Credit card debt is a huge problem in America. According to recent data, Americans owe a total of $841 billion* in credit card debt. Meanwhile, the average American household with credit card debt owes about $6,300*.

If your credit card debt is causing you sleepless nights and stopping you from living life to the fullest, one excellent strategy you can use to get out of it is creating a budget. A budget can help you track your spending and identify areas where you can free up money each month to put towards debt payments. 

Follow these steps to build a budget to help you tackle your credit card debt and regain your peace of mind.

Step 1: Work Out Your Monthly Take-Home Pay

The first step in creating a budget is to figure out your monthly take-home pay. This is the amount of money you take home each month after taxes and other deductions, such as health insurance premiums and 401(k) contributions. 

Your take-home pay includes the net pay for your regular job (which you can find on your pay stub) as well as other monthly sources of income, such as: government benefits, child support, alimony, or investment earnings.

Step 2: Track Your Spending and Work Out Your Monthly Expenses

Once you have an idea of how much money you have coming in each month, the next step is to figure out how much you have going out by tracking your spending for at least a month. Your expenses will typically fall into two major categories: fixed expenses and variable expenses.

Fixed expenses are those that stay the same every month. They include:

  • Rent or mortgage payments
  • Car payments
  • Childcare costs
  • Insurance premiums

Variable expenses, on the other hand, typically vary in amount from month to month. If some of your variable costs usually change a lot from month to month, use an average of a few months. They include expenses like:

  • Groceries and dining out
  • Utility bills
  • Clothing
  • Entertainment
  • Personal care expenses
  • Home maintenance and repairs
  • Healthcare expenses
  • Gasoline

How to Track Expenses

There are 2 main ways to track your expenses, but each option has its pros and cons.  
1. Manually by keeping a notebook or by using a simple program, such as Google Sheets.
2. Using an online tool or budgeting app such as or You Need A Budget.

Manual Budgeting (on Paper or Using a Spreadsheet)
– Pros
: Usually free and offers limitless customization
– Cons: You have to input data manually and possibly do some calculations – which can be time-consuming – and it’s typically not possible to sync with your bank.

Online Budgeting Tools and Apps
– Pros
: Ready-made or quicker to set-up since things like spending categories may already be created; can be synced with your bank or other financial accounts; and some come with preset reports to help you analyze your spending.
– Cons: Not all apps or tools are free, and they may have customization limitations ( might be limited to a certain number of or certain types of spending categories).

Step 3: Plan Your Goals

The third step in creating a budget is to plan your goals. One of the goals you need to set, for example, is a timeline for getting out of credit card debt. Having a time frame in sight when you know you will be debt-free can help you stay motivated in your journey to eliminate your debt.

Naturally, this timeline will differ from person to person and will mainly be determined by the amount of debt you have and your current income. The most important thing is to be realistic and give yourself enough time to repay your debt.

Once you’ve established a timeline, work out how much you need to repay each month to achieve your goal. There are online calculators that can help you with that. All you’ll need to do is enter how much you currently owe, your interest rate, and the desired number of months to pay the debt off. The calculator will then let you know the minimum payment you need to make each month to achieve your goal.

The next step is to see if you have enough to meet these minimum payments. That is, after subtracting your fixed and variable expenses from your take-home pay, do you have enough money left to reach your goal? If the answer is no, take a look at your expenses again and start thinking of ways to save money.

For example, you might be able to save money on food by cooking more at home instead of going out to eat. Or, you could even decide to cancel your expensive gym membership and start working out at home or outside. 

You might also be able to save money on your utilities such as natural gas and even insurance by shopping around for better deals with different providers. These are just a few examples ⁠—go through expenses one by one to see where it’s possible to make savings.  

Of course, don’t go overboard when it comes to trimming expenses. Don’t, for example, cut out every single fun activity from your budget. If you deprive yourself of all joy and pleasure, you'll be less likely to stick to your budget in the long run. Sooner or later, you're likely to give in and overspend. 

So instead, aim to strike a balance, that is, cut back on unnecessary expenses, but don't completely deprive yourself of the things you enjoy. You are more likely to stay on track with your financial goals this way.

Step 4: Choose a Budgeting Approach

So far, all the steps we have discussed relate to the things and the information you need to gather first before you can create a budget. Now, you need to decide on the budgeting technique to use. There are several options to choose from.

Two of the most popular ones are zero-based budgeting and 50/30/20 budgeting. Here’s how each one works.

Zero-Based Budgeting

The zero-based budgeting technique involves allocating every single dollar that you earn to a particular expense. So, at the month’s end, you should have a zero amount of dollars because everything has been spent or saved. Since every dollar is assigned a specific purpose, this budgeting technique can help you pinpoint areas where you might be overspending and thus prevent you from doing so. 

If you are the type of person who usually spends more than they make, the zero-based budget could be ideal for you as it can help you prioritize where your money goes.

50/30/20 Budgeting

The 50/30/20 budgeting technique involves breaking your expenses into three major categories: needs, wants, and savings and debt repayment.

  • 50% of your net income goes to necessities such as food, housing, utilities, insurance premiums, groceries, and bill payments.
  • 30% of your net income goes to things that are nice to have, but not absolutely necessary, such as dining out, shopping, gym membership, and vacations.
  • 20% goes to savings and debt repayment.

Other Budgeting Techniques

Apart from the zero-based and the 50/30/30 budgeting techniques, there are several other budgeting approaches, such as the pay yourself first approach and the envelope system.

Research all the available options to see which one might work for you. Remember that no single technique is right for everyone: the best one for you is the one that you believe will help you stay organized and accountable.

Step 5: Prepare Your Budget

Once you’ve settled on a budgeting technique, it’s now time to create your actual budget. Since your focus is on repaying credit card debt, the main goal of the budget will be to help you plan how much you should be spending going forward so as to have enough money left to pay off your debt within your desired timeframe.

If you are using the zero-based budgeting technique, start by noting down how much you wish to spend on the absolute necessities such as food and housing each month. After that, jot down how much you wish to spend on debt repayments. Then, add non-essential expenses one by one until you run out of cash. 

With this approach, non-essential spending such as eating out, clothes, shopping, and entertainment will have lower priority than payments to reduce your credit card debt (which after all is your primary goal).

If you decide to use the 50/30/20 approach, allocate 50% of your income to necessities. Then allocate 30% to non-essential expenses and 20% to savings and debt repayment.

Depending on your desired timeline for getting out of debt and therefore the minimum amount that you have established you need to pay each month, you may realize that 20% is not enough to cover it. In that case, you may then decide to cut or scale back on some of your non-essential expenses, i.e., your “wants,” and put that money towards debt payment.

Step 6: Check-in Every Month

Once you’ve created your budget, strive to follow it through and live within the limits you have set. Check-in every month, to make sure you are still on track.

Of course, there are some months that may find that you have gone over budget. That’s ok. As long as you are sticking to your budget most of the time and can clearly see progress on your credit card debt payment, there is no need to panic. 

Keep in mind also that, as time goes on, your circumstances may change. Your income may fluctuate, or your spending habits may no longer line up with what you have planned in your budget. Don’t be afraid to make adjustments to your budget to accommodate such changes. 

Remember that the goal isn’t simply to keep a budget: it’s to use money as a tool for happiness. A budget is merely a tool to help you build yourself a successful financial life which should then lead to happiness. Review and adjust this tool from time to time, or as often as you need to, to help you reach your goals.

How Else Can You Pay Off Your Debt Faster?

If you want to pay off your credit card debt even faster, there are ways to make that happen.

Make More Money

If you can spare a few hours every week, you can start a side hustle that could give you some extra cash to accelerate your debt payment process. A side hustle is simply a job that you do on the side or part-time to supplement your regular income. There are numerous side hustle opportunities available these days.

Here are a few that could be worth exploring:

  • Freelance writing
  • Driving for a ride-sharing service like Uber or Lyft
  • Selling hand-made crafts online
  • Tutoring or selling courses online
  • Babysitting or pet sitting

The most important thing when choosing a side hustle is to go for something that you can fit around your schedule so that it does not interfere with your main job. Also, consider going for something that you are passionate about. You will be more motivated to work on the side hustle if it’s something you view as fun and not a chore.

Consider Simplifying Your Credit Card Payments

Another strategy that can also help you pay off your debt faster is using a personal loan to pay off your credit card debt. This involves using a balance transfer credit card or a personal loan to roll your high-interest credit card debt into one debt, potentially one with a lower interest.

Rather than having multiple credit card debt payments to worry about each month, you will only have one payment to think about. Plus, you may be able to save money on interest and boost your credit score in the process. Check out our free credit card debt worksheet to get started.

If this sounds like something that you might be interested in, check out Happy Money. With Happy Money, you may qualify for a personal loan to help you pay off your credit cards faster, putting you on the path to financial freedom. Check out The PayOff Loan™ to check your rate for free and without impacting your credit score.

*Data sourced from LendingTree and Federal Reserve