Learning to Budget 101: Guide to Getting Out of Debt

If you are serious about getting out of debt and staying out of debt in the future, the most important skill you can learn is how to budget.

“Budgeting sets up a framework for your household expenses, limits for your spending and helps you determine a path towards paying down your debt,” says Jeff Schwartz, Executive Director, Consolidated Credit Counseling Services of Canada.

“On the flipside, living without a budget means not having an accurate understanding of how to effectively manage your household expenses. Without this vital tool, the debt cycle will keep churning,” says Schwartz.

Not having a budget is one of the most common reasons why people end up with debt problems in the first place. The good news is that learning to budget is easy and once you have a plan in place, following it will bring you closer to financial freedom and debt free living.

Do you have a budget? It’s an essential component of debt repayment. We can help you learn about budgeting and determine the best debt solution for you. Call one of our trained credit counsellors at or check out our free online debt analysis.

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In the meantime, here is a crash course in learning to budget 101.

Decide to stop spending

Before you even draw up your budget, make a commitment to stop spending beyond your means and accumulating debt. Even if you’ve got a budget and a plan in place to get rid of your debt, your success ultimately depends on shifting your attitude towards spending.

You also need to make a conscious decision to make your budget “the boss”.  In addition to putting the cards away and living a cash only lifestyle, you’ve got to commit to expenses that are laid out within your budget only.

Educate yourself

It can motivate you to achieve your goal of being debt-free if you can understand why a budget is so important. When you’re in the planning stages, take some time to become financially literate about the benefits of budgeting and the role that they play in your financial health. Knowledge is power!

How to build the budget

Gather all of your financial statements so that you have an accurate picture of what your debt load looks like. It’s not uncommon for people who are deeply in debt and don’t have a budget to not fully be aware of how much debt they actually have. It can even be a little shocking when you lay all your debt out on the table-literally- but it’s the first step in getting rid of your debt, once and for all.

Next, look at your income, so you’ve got a picture of how much money you earn. If you’re an hourly wage employee, gather your paystubs and figure out what your average paycheque is. Use this as a baseline for your budget. It’s a good idea to estimate your income on the low side, so you don’t cut your cash flow too short.

Now write down all of your expenses in detail: debt payments, rent/mortgage, utilities, food, transportation, entertainment, child care expenses etc. Break these expenses into fixed and variable categories. Fixed payments are the same every month (I.e. your rent/mortgage). Variable expenses fluctuate (i.e. groceries, utilities) so these are the areas to zero in on if you’re trying to cut costs. Allocate your income to cover your expenses.

Where can you cut back? If your goal is to pay down your debt, you’ll need to trim your budget. This can be a challenge if you’re used to spending beyond your means. Recognize the connection between frugality and your ability to pay down your debt and you’ll be able to make the sacrifice more easily.

Include savings. It’s essential that you use part of your budget to go towards emergency savings. If you don’t have any savings and you encounter unexpected expenses, your debt load will go right back up again, erasing your hard work.

How much do you have leftover? Use any extra money that you’ve got to put down on your debts, beyond the minimum payments. To pay your debts more quickly, pick a single debt (usually the higher interest bearing one) and direct extra money to that debt. The money you pay over the minimum payment will go directly to reducing your outstanding balance and you’ll be out of debt even sooner.

Track your spending. It’s not enough to set up a framework for your spending with a budget. You’ve got to make sure that it’s working. The best way to do that is to track your spending. Make sure that you account for every dollar.


Quarterly review

Your budget is a dynamic entity, which means that you need to commit to reviewing it often. It’s recommended to review it once a quarter. If your budget is too strict, you may have had a hard time sticking to it, which will interfere with you reaching your goals. Likewise, doing a review will help you identify areas for improvement.

Pick a system

It’s important that you pick a budgeting system that works for you. There are all kinds of apps and tools available. Pick one that suits your personality and financial style. You may be old-school and use pen and paper.  A standard spreadsheet is a good option too. You can also take advantage of many free (or low cost) apps and worksheets that will get the job done.

One tried and true budgeting trick is to use envelopes. Allocate cash in an envelope for each of your budget expenses. This is a great visual aid to help you spend within your means and stick to a cash lifestyle.

How to stay motivated

It took time to accumulate debt, so it’s going to take time to get out of debt. How can you stay motivated over the long term? Post your goal in a high-traffic area of your home. Check your account balances every morning so you’re mindful of your spending. Plan to reward yourself when you achieve milestones.

Ready to set up a budget and pay down your debt? Call us at or visit our free online debt analysis.