How to Set a Budget & Get Out of Debt

Keep track of your income and expenses to start budgeting.

Keep track of your income and expenses to start budgeting.

You have probably heard the adage that recognizing a problem is the first step in correcting it. This statement--while normally attributed to substance abuse--can also apply to being in debt. Plenty of people are in debt, but not everyone wants to do something about it. One of the key steps in getting out of debt is learning how to set a budget.

Stop using your credit cards. If you pay your balance off at the end of each month, then you can use your cards. However, if you are in debt, it’s likely that you carry a balance. Until you pay off your credit card debt, put your credit cards away and use your debit card, cash or checks instead.

Focus on paying off your credit card with the highest interest rate first. Pay more than the minimum on that card, while making minimum payments on your other credit cards. Once you pay off the first card, apply the same principle to each subsequent card.

Look at your income and expenses for the prior month. If your expenses are greater than your income, you have to make some changes by boosting income or cutting spending. The first place to start, according to the Better Business Bureau, is to cut out your fun money--your non-essential spending. If you keep track of every dime you spend in a week, you'll probably find areas to cut. Getting a mani/pedi is nice, for example, but not a necessity, except maybe for a special occasion.

Set short-term and long-term goals beyond getting out of debt. You want to have something exciting and motivating to look forward to. Of course being debt-free can be exciting, but it somehow lacks the “wow” factor. debt adviser Steve Bucci suggests segmenting your goals into categories: one year from now, five years from now and retirement. Include the cost of whatever you are striving for to keep you on track.

Save some money every day. Make it a game to see what you can cut out. Maybe you can bring your lunch to work instead of going out to eat. Maybe you can cancel your cable TV subscription and watch TV on your computer instead, using Hulu, Netflix or TV stations that air their programs online. You can certainly make your own coffee in the morning instead of visiting your local barista.


  • If you decide that you need a little help, contact the National Foundation for Credit Counseling, a reputable organization that can offer you advice or can get you started in a debt-repayment plan.
  • When figuring your expenses, don’t forget to include periodic expenses such as insurance payments.
  • Once you get out of debt, start saving seriously, with the goal of putting six months' worth of expenses in an emergency savings fund.

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