Budgeting: Your Best Partner When In Debt

Navigating through debt? You're not alone. Whether it's the aftermath of credit cards, the weight of student loans, or the responsibility of a mortgage, debt is a reality for many. But a smart budget, personalized to your income and lifestyle, can be your greatest asset in paying off your debt and reaching financial freedom.

Why Budgeting Matters

Budgeting is more than just tracking expenses; it's about regaining control. It enables you to prioritize your spending, ensures you can make your debt payments on time, and helps you work towards becoming debt-free. Without a budget, it's easy to overspend in some areas, leaving too little for debt payments and savings.

Step 1: Assess Your Debt

Begin by laying out all the details of your debt: the total amount owed, interest rates, monthly minimum payments, and due dates. Understanding the full scope of what you owe is crucial for creating a plan to pay it off.

Step 2: Pick a Budgeting Tool

There are many free online and mobile budgeting tools available that can help you plan your budget. Budgeting tools can automate calculations, categorize expenses, and give you a bird’s eye view of your financial landscape. Selecting the right tool can help you stay committed and achieve your loan repayment goals.

Plan and Track with USC Credit Union's Budgets and Savings Tool

Our Online Banking Budget and Savings tools are easy-to-use resources to empower your financial success journey. Categorize your expenses, gain insights into your spending habits, and visualize your progress.

Already a member? Create a new budget or savings goal* in Online Banking today! You can find these tools under the Accounts menu.

Calculate Monthly Income

Determine your monthly take-home pay after taxes and any other deductions. This will give you a clear picture of the amount of money you have to work with each month.

Step 4: Set a Budget with Your Debt Payments

Now that you know your "disposable income," it's time to establish your spending priorities. One popular approach to budgeting is the 50/30/20 rule:

  1. 50% for Needs: Allocated to essential expenses such as housing, utilities, groceries, transportation, insurance, and minimum loan payments. Your loan and credit card minimum monthly payment is a "must pay" along with your other bills.
  2. 30% for Wants: Discretionary spending on non-essential items like dining out, entertainment, hobbies, and personal indulgences.
  3. 20% for Savings and Investments: A budget ensures you have an emergency fund to fall back on, preventing you from relying on credit cards or additional loans during tough times.

How to Prioritize Budgets

The 50/30/20 rule is just one framework to manage your budget. If your goal is to pay off your debt quickly or you have a hefty balance, consider allocating more than 20% of your income to debt repayment. Paying more than the minimum monthly payment on your debt will help you reduce your principal balance faster and save on interest.

Other Budgeting Methods

Here are some other budgeting methods, each with its own advantages and suitability depending on individual circumstances and financial objectives:

  1. Zero-Based Budgeting: A method where you allocate every dollar of your income to specific expenses or savings goals. Unlike traditional budgeting, you start from scratch each month, giving every dollar a purpose. This method encourages prioritizing expenses based on needs and wants.
  2. Envelope Budgeting: A hands-on method where you allocate physical envelopes or virtual categories for different spending areas. You place cash in each envelope for specific expenses like groceries, entertainment, or dining out. Once the envelope is empty, you can't spend more in that category until the next budgeting period.
  3. Pay Yourself First Budgeting: Places a strong emphasis on saving, investing, and debt repayment before allocating funds to other expenses. In this approach, you set aside a predetermined portion of your income for savings and debt payments as soon as you receive it, treating it as a non-negotiable expense.

Step 5: Revisit Your Budget

Life changes, and so will your budget. Regular check-ins ensure your budget evolves with your financial situation, allowing adjustments for new expenses, income changes, or shifts in financial priorities.

Free Debt Management Resources

Take advantage of our valuable resources to successfully navigate debt management:

  1. Debt Management Plans: Get back on track and well on your way to planning a better and brighter financial future. Start with a free counseling session.
  2. Financial Focu$: Financial literacy courses on topics from budgeting, debt management, and student loans.
  3. LearningLab+: Interactive and engaging online modules on prioritizing expenses, redesigning financial habits, and more!

*Only savings accounts are eligible for setting up a savings goal.