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Your payoff plan · Lesson 5 of 10

Find Money to Pay Down Debt and Stop New Debt

Build a budget from real spending, find the gap, pay priority bills first and stop new debt with a small starter emergency fund.

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THE WRITTEN LESSONFollow along at your pace

You have your list. Now you need money to pay it down faster. In this lesson you will find that money in your budget, decide which bills come first, and stop new debt from piling on while you pay the old debt off.

Start from real numbers

Start with your take-home pay, the money that actually reaches your account. Then list one or two months of real spending from your statements, not from memory. People usually underestimate what they spend, often by a lot, and spending by card is the easiest to miss. In small studies, people underestimated their latest card bill by about 30% on average, against about 7% for cash.

A payslip with take-home pay of 2,400 dollars, three bank statements listing groceries, transport, subscriptions, rent and card spending, a short light bar labeled Guessed spending beside a taller red bar labeled Real spending, and a card with the note Card spending is easy to miss.(opens the full-size picture)
Real spending is usually higher than the guess.

Find the gap

Take your spending away from your income. If there is money left, that is what goes to debt. If there is not, look for costs you can cut with the least pain, such as subscriptions you do not use, cheaper plans, or eating out less. Small amounts add up when they go to debt every month.

A strip reading Income minus Spending equals Money for debt. Below, three cards with scissors: Unused subscriptions, Cheaper plans with a 30 dollar tag, and Eating out less. On the right, coin stacks grow from month 1 to month 3 under the label Every month.(opens the full-size picture)
Cut where it hurts least, then send that amount to debt every month.

Priority bills first

Some bills come before any other debt: your rent or mortgage, energy, and taxes. Falling behind on those can cost you your home or your power, so pay them first. Then pay the minimums on everything else. Then put the extra on top. If you cannot cover the minimums or these essential bills, get free advice before anything else.

A highlighted top block with a house, a light bulb and a tax form labeled Rent or mortgage, Energy and Taxes, with the words Pay first and Can cost your home or power. Below it, two boxes: Minimums on everything else, and Extra, to pay debt down faster.(opens the full-size picture)
Order: priority bills, then minimums, then extra.

A small starter fund

Next, stop new debt. Many debts start with a surprise bill, like a car repair. In a US survey, 79% of people with no savings had trouble paying a bill in the past year, against 44% of those with some savings. That is a link, not proof, but the idea is simple: a small cushion stops a shock from turning into a new card balance.

So keep a small starter emergency fundemergency fund: Money kept in an account you can reach quickly, to cover unexpected costs or a drop in income without borrowing. How much to hold depends on your circumstances, and official guidance differs by country.Full entry in the glossary while you pay down the expensive debt. You do not need a big amount to begin.

A car with a wrench and the label Surprise bill 400 dollars, pointing to a locked credit card labeled New debt. Next to it, a jar with three coins labeled Starter emergency fund and a green check with No new debt. On the right, two bars for Trouble paying a bill: a tall red bar for no savings and a shorter green bar for some savings.(opens the full-size picture)
A small jar takes the hit, so the card stays locked.

Close the tap

Finally, close the tap. Take the cards out of your phone’s wallet and your shopping sites, and treat pay-later plans as borrowing. You cannot empty a bath while the tap is still running.

A bathtub filled with pink water labeled Debt, with the tap turned off and the label Tap closed. On the right, a phone with the note Saved cards removed, and a Pay later button labeled This is borrowing.(opens the full-size picture)
Stop adding new debt while you pay the old debt off.

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Read the full lesson script

Welcome back. You have your list. In this lesson, you'll find money in your budget to pay it down faster, decide which bills come first, and stop new debt from piling on.

Start with your take-home pay, the money that actually reaches your account. Then list one or two months of real spending from your statements, not from memory. People usually underestimate what they spend, often by a lot, and spending by card is the easiest to miss.

Take your spending away from your income. If there's money left, that's what goes to debt. If there isn't, look for costs you can cut with the least pain: subscriptions you don't use, cheaper plans, eating out less. Small amounts add up when they go to debt every month.

Some bills come before any other debt: your rent or mortgage, energy, and taxes. Falling behind on those can cost you your home or your power, so pay them first. Then the minimums on everything else. Then the extra.

Next, stop new debt. Many debts start with a surprise bill. People with even a small amount saved cope with shocks much better than people with nothing. So keep a small starter emergency fund, while you pay down the expensive debt.

Finally, close the tap. Take the cards out of your phone's wallet and your shopping sites, and treat pay-later plans as borrowing. You can't empty a bath while the tap is still running.

So remember: build your budget from real spending, not guesses. Pay rent, energy and taxes first, then minimums, then extra. And stop new debt with a small starter fund and fewer saved cards. Before the next lesson, find one regular cost to cut, and move that amount to your debt. Next, you'll choose between the snowball and the avalanche.