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Fitting Debt Payments into Your Monthly Budget

Catherine Hiles • August 11, 2022

Debt doesn’t have to stress you out. These methods will help you work debt payments into your monthly budget so you can focus on what matters to you.

In an ideal world, we’d all make enough money to pay for essentials and grow our savings to pay for the unexpected. But in reality, things like student loans, unexpected car repair bills, and medical bills can prevent you from spending money on what you want. 

Around 28% of Americans had debt in collections on their credit reports in August 2021, according to the Urban Institute. That number may soon increase as the COVID-19 freeze on student loans ends on August 31, 2022. But by taking control of your debt, you can make a plan to pay it off and start spending your money the way you want.

Learn how to pay off credit card debt and other large debts with these monthly budgeting strategies.

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What does your debt look like?

Before making a plan, consider what your debt looks like. Do you have loans, credit cards, or both? What are your monthly debt payments? How are those payments affecting your life?

Debt can be categorized as being good or bad1. Good debt includes mortgages, student loans, and business loans; this type of debt has the potential to grow your net worth and assets. Bad debt includes credit card debt, car loans, and payday loans. “Bad debt” means you are borrowing to buy a rapidly depreciating asset or simply to spend. It’s alright to take your time to pay off good debt, but you want to get rid of bad debt as quickly as possible.

Once you understand the debt you have, you can work on determining how to pay it off. One practical option is a debt consolidation loan.

What is a debt consolidation loan?

Are you tired of making multiple debt payments each month? A debt consolidation loan could help. But what is a debt consolidation loan, exactly? The most common type of debt consolidation loan is a personal loan with a reasonable APR. Debt consolidation is one of the top reasons to get a personal loan

A personal loan combines multiple debts into one monthly payment. Depending on your credit score, you could qualify for a lower APR than you pay on your existing debt, which can save you money.

A debt consolidation loan is a smart option if you have a lot of “bad debt.” But it’s not for everyone. Here are the pros and cons of a debt consolidation loan.


  • You’ll have fewer payments to worry about each month.
  • You might pay less interest overall.
  • You could pay off debt sooner.
  • You may get a lower monthly payment amount.


  • The loan may come with additional fees, such as origination fees.
  • You might get a higher APR if your credit score isn’t great.
  • You might pay more in interest over the life of the loan.
  • If you don’t change your spending habits, you could fall deeper into debt.

Debt avalanche vs. debt snowball method

Two popular debt repayment methods are debt avalanche and debt snowball. Each method approaches debt repayment slightly differently. Compare the details of debt snowball vs. debt avalanche to see if either method is best for your debt situation.

Debt avalanche method

The debt avalanche method takes a measured approach to debt repayment. The goal of this method is to accrue as little additional interest as possible on existing debt. The debt avalanche method may take longer to pay off your debt, but it’s satisfying knowing you haven’t paid any more interest than necessary.

The first step is to make the minimum monthly payments on all your debts. Now, turn your attention to your highest-interest debt and make additional payments every month. The extra payments will help you pay off that high-interest debt faster. 

Once you’ve paid off that debt, continue making minimum monthly payments on everything but the next-highest-interest loan. Take the extra money you were putting toward the initial high-interest debt and put it toward the second-highest. You’ll slowly chip away at your debt without paying additional interest.

The debt avalanche method isn’t for everyone, but it has its benefits if you can pull it off. Here are the pros and cons of this method:


  • You’ll pay less overall interest throughout the loan repayment period.
  • It can be a quick way of paying off high-interest debt.


  • Your income must be consistent for this method to work.
  • High-interest debts with high balances can take a while to pay off.

Debt snowball method

While the debt avalanche method focuses on the largest debt first, the debt snowball method focuses on the smallest debt.

Like the avalanche method, you’ll make minimum payments on all your debts using the snowball method. But you’ll make an extra monthly payment to the debt with the lowest balance. Once that’s paid off, you’ll make the additional payment to the second-smallest-balance debt. Using this method, you can get rid of smaller debts quickly, so you have fewer overall payments to make. Seeing those smaller debts disappear can be a motivator.

Wondering if the debt snowball method is for you? Here are the pros and cons of this method.


  • Paying off small balance debts can give instant gratification to help keep you motivated. 
  • You can make progress on your debt quickly without spending too much extra money.


  • You’ll likely pay more in interest over the life of your debts.
  • It can take more time to pay off debt using this method.

Both the debt snowball and avalanche methods offer a way to pay off your debt in a structured manner. Your financial goals will help you choose the best one for you.

Top debt budgeting methods

To regain control of your debt, you need a budget. You’re not alone if you immediately thought of an elaborate spreadsheet full of numbers and calculations. While that’s an effective budgeting method, it’s not the only one. There are several ways to budget, and not all involve complicated math equations. Let’s look at how you can manage your monthly budget.

Zero-based budgeting

Zero-based budgeting is exactly what it sounds like. Each month, your income minus your expenses should equal zero. A zero-based budget can be a very involved budgeting method. However, it can paint a clear picture of your monthly finances and help you curb unnecessary spending to pay off debt faster.

Before getting started, track your expenses for two or three months to identify where you spend money and where you can cut back. Then, at the beginning of each month, review your total income from the prior month and use that as a starting point. Assign a budget to each of your regular monthly expenses. Any leftover funds can go toward debt repayment.

Keep track of your monthly spending to ensure you don’t go over budget. You can use a spreadsheet or download an app to help with this. At the end of each month, review your spending and make changes to your budget as needed. If you notice areas where you can cut back on spending, that can be extra money to put toward your debt.

50/30/20 method

The 50/30/20 method is a popular budgeting technique. It is also quite simple to work with and is adaptable to your financial situation. Here are the basics of how this method works.

  • 50% of your income goes toward “needs.”
  • 30% goes toward “wants.”
  • 20% goes toward savings or debt repayment.

You’ll categorize each expense as either a “need” or a “want.” “Needs” include housing, utilities, groceries, healthcare, and medications. These are expenses you have to pay as part of basic living costs. For example, if you stop paying rent, you won’t have a place to live, and if you stop paying for required medication, you could become very sick.

Wants” are expenses you could do without but still choose to buy. “Wants” include streaming subscriptions, restaurant meals, travel expenses, clothing, and electronics. Your “wants” will vary depending on your interests.

It can be hard to differentiate between needs and wants. For example, groceries are a “need” because eating is essential for survival. But buying expensive junk food at the store would count as a “want.” 

If your debt is high, consider decreasing the percentage spent on “wants” and putting more toward debt repayment. It might be a hard transition at first, but it’s worth it if you can determine how to get out of credit card debt faster. 

Envelope system

The envelope system is a more traditional way of budgeting. Each month, gather several envelopes and write a spending category on each, such as entertainment or groceries. Then, put the budgeted amount of cash into each envelope. Once you’ve spent the money in each envelope, there’s no more for that category until next month. Using the envelope method helps you learn to pace your spending.

This system works because spending cash feels more tangible than debit or credit card. When you pay for items with cash, you see and feel the money, which can reduce unnecessary spending. But this method has a drawback; fewer people still use cash regularly.

If you don’t want to use physical cash, you can still use the envelope budgeting system by downloading an app. Some examples of envelope budgeting apps include Goodbudget, Myvelopes, and SimpleBudget. Read the reviews and ask friends for recommendations before choosing an app.

Final thoughts

There is no one way to pay off debt. Each method has its pros and cons; the right one for you won’t be the right one for someone else. Research and test different methods to see which works best for you.

Considering a personal loan to consolidate your debt repayment? Find out how to secure a loan with bad credit.

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1 Good Debt vs Bad Debt: an Overview.

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