Paying Down Debt When Income Remains the Same

A question on Twitter, born out of an exchange between A Richer Understanding contributor Brian Tramuel and a fellow user, served as the catalyst for this post. As you might guess, clever reader that you are, the question is, “how do you pay down debt when your income remains the same?” The process is very straight forward and only involves three steps: track all your expenditures, identify those which can be reduced or eliminated, and apply the savings to debt.

Pink Piggy

Track each and every one of your expenditures for three months. I say again, track ALL of your expenditures. Far and away the most critical step is this first step. I guarantee you that when a detailed analysis is conducted, the vast majority will find that they spend more, significantly more for some, than they believe.

Most people’s money issues start with the fact they don’t respect their money. While they have a firm grasp on what is coming in, they don’t really know what is going out and exactly where it’s going. How do people find themselves in a debt hole? They underestimate how much they utilize credit and the combination of cash and credit purchases exceeds their income.

Three months isn’t that difficult. Two years ago the wife and I tracked our expenses for the entire year to know exactly what we spent and to incorporate that number into our retirement planning. We plan to do the same again in four years, five years from our retirement, so we’ll have a good idea of what our retirement spending will look like.

The tool I use, the Spending Planner, is available as a free download. This spreadsheet gives you the opportunity to track each of your expenses, by category, over a three-month period. Note that the worksheet is editable, allowing you to update the spreadsheet with categories/expenses that fit your specific household.

Simple Spending Planner

At the end of those three months, identify where expenditures can be reduced or eliminated. Stay with me as I go off on a slight tangent for a minute …

In addition to helping identify where your money is currently going and making adjustments, knowing your monthly expenses can also help with determining what your emergency fund needs to be and help determine the requisite size of your investment portfolio at the time of retirement.

Looking at the emergency fund first, I recommend three months of living expenses at a minimum. Fastidiously track your spending for three months and you have all the information you need. Want to maintain an emergency fund equal to six months of expenses? Multiply your result by two. A year? You get the idea.

Remember the 4% rule? It helps to determine how large your retirement nest egg should be at the point of retirement. Let’s assume you track your expenses for three months and the total comes to $12,500. If we extrapolate that out over the course of a year we get $50,000. Assuming you want to maintain your current standard of living in retirement, you need to know where that $50,000 will come from. Let’s assume you have a defined benefit plan (pension) from your current employer which will provide $10,000 annually; and your Social Security statements projects your pension will be $10,000 and your spouses will be another $15,000. Between those three sources you’ve got $35,000 of the $50,000 covered, which means your own savings/investments need to bridge that gap. Applying the 4% rule (15,000 / .04) we see that your nest egg at retirement needs to be $375,000.

As you can see, using the planner to detail your numbers can provide many uses as you conduct your retirement planning.

Okay, back on message …

Reducing some of those expenses should be fairly easy. Trust me, switching to a more basic cable package until your debt is paid will not kill you. Maybe spending less time in front of the television will free up some time for you to work out more, improving your physical health.

As we have discussed here at RetirementSavvy on multiple occasions (here and here), fiscal and physical health go together like peanut butter and jelly. Got a gym membership? As I just noted, I’m a strong advocate for physical health. However, if paying down debt has become your priority for a given period – six months, a year, maybe more – you can do without the membership. The last time I checked, walking and running were still free; and push-ups and sit-ups can be done anywhere. Do you eat? Buy groceries? Why not start using coupons. When it comes to saving money, you’re only limited by your imagination.

The final step of course … add the savings to what you’re currently applying to your debt each month. Looking ahead, once the debt is paid off, the savvy individual will not reestablish those old spending levels on items/activities they reduced or eliminated. Instead, why not use that saved money to fund savings or investment accounts?

Let’s briefly talk about increasing income. Some reader out there is bound to think to themselves, “I’ve already cut my expenses to the bone. I have nothing left to reduce or eliminate!” If that is truly the case – if you track every penny for three months, cannot reduce or eliminate any expenditure and cannot find an additional $25, $30, $50 or more – you only have one option, my friend … increase your income. It may sound cruel but that is the reality. It might mean finding part-time work, looking for a side hustle, writing a book, or any number of other endeavors.

Stay Savvy, my friends.



Blogger-in-Chief here at RetirementSavvy and author of Sin City Greed, Cream City Hustle and RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit.


  1. I couldn’t agree more about the importance of tracking. I was an unconscious spender myself (which sounds like I was passed out – but you know what I mean), and tracking raised my awareness so much. In our first year of debt reduction, my husband and I, with the same income and the same expenses as we’d had the year before, paid off over 300% more debt. Most people CAN reduce their debt significantly without greater income. (That being said, a greater income can certainly help.)

    • “I was an unconscious spender myself (which sounds like I was passed out … .” Ha. Yep, I know what you mean. As I often say – just ask my wife – it’s less about what you make and more about what you do with what you make. To be certain, there is some real poverty out there and some people simply have insufficient income, however, the overriding problem for many is poor choices and inefficient utilization of the money they do have.

      Thanks for sharing your thoughts, my friend.

  2. Cutting basic cost such as cable, eating out, entertainment just for a couple of months can lead to huge cost savings. People often fail they need to alter their lifestyle to better themselves in the future and this is where a budget is really handy, like you pointed out.

    One other thing you point out is fitness. Once again this is a long term benefit that people overlook but it can save you hundreds and even thousands of dollars later in life!

    • Great, great points. For a lot of people, it’s not that they don’t have enough money – to be certain, that is an issue for some – it’s that they don’t efficiently distribute the money they do have. With respect to fitness, that is a priority for the wife and I. Not only do we benefit now, we’ll be more able to enjoy retirement (i.e. mobility, endurance, etc.) when we get there, and it should help mitigate healthcare costs as we get older

      Thanks for the great observations, my friend.

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