Budgeting To Pay Debt: How to Plan a Budget to Start Paying Debt

Planning a simple budget to meet our monthly expenses and payments is very easy but planning a budget to pay off debt is a bit difficult so today I would like to assist people in terms of planning a budget to start paying off debt with simple modifications of their monthly budget. Before doing this, we need to summarize the whole process of budgeting and categorize all the expense items including housing, food, utilities, transportation, medical expenses, property taxes, childcare/education expenses, entertainment/dining out, insurance payments, travel and vacationing, credit card and loan payments, and clothing and gifts and also other miscellaneous items associated with our monthly allowance and our monthly budget. Now look at the budget table below where all these expense items each month have been categorized with amounts:

In the above mentioned table, the total comes out to be 2625 dollars per month so let’s assume that’s our monthly expense and our income is 2600 dollars per month. Now as you know INCOME - EXPENSES = CASH FLOW, so the above figures in our monthly budget give us a negative cash flow of 25 dollars per month but our goal is to have a positive cash flow each month so that we start paying debt. Now what we have to do is to have a thorough look at our budget and alter some expense items that have the most flexibility, as we cannot touch items that are really necessary for our day to day life. The donations/charity, entertainment/dining, vacation/travel, clothing/gifts are flexible items that can be modified from our monthly budget to able to give us some positive cash flow each month.

Now let us change our donations/charity items to 50 dollars, entertainment/dining item to 100 dollars, and trim down vacation/travel to 100 dollars each month, so doing this will improve our budget to 150 dollars decreasing our monthly expenses from 2625 dollars to 2475 dollars. See the table below:

Now what we have in our hands is pure positive cash flow of 150 dollars per month, 50 dollars of which can be utilized to put in savings account each month or start a very small retirement plan and 100 dollars of this can be utilized to pay off credit cards and loans debt, so budgeting in this way will find ways where you can reduce your expenses creating a positive cash flow each month to start paying debt.