If you are looking to pay off debt, so are most Americans in 2021.  If you don’t have a budget in place, this is your starting point.  Now is the time to start turning things around and using the right budgeting software is going to get you there. YNAB will help you align your spending decisions with your financial goals and priorities. Once you achieve this, you will start moving forward on a positive financial path.

What debt does to your financial power

When you carry debt, you can feel it in every aspect of your finances.  This is because debt keeps you stuck.  You can’t choose to use your money for future goals.  It is already tied up in your debt.  So what does this all mean?  You clearly have a cash flow problem.  You get that paycheck and most of the money is spoken for.  Whether it was used for a night out or to fix your car, it is gone. Bottom line, you are in debt because you spent more than you earned.  It is time to pay off that debt!

The truth lies in your spending

When people begin on the path to fixing their finances, what they spend is tackled first.  To most, this feels depressing.  No more spending and no more fun!  That is just not the case.  Your job is not to stop all spending but to question what you are spending your money on.  Have you given thought to why you spend your money the way you do?  Probably not or you would not have to pay off debt.

So much of spending is just not aligned with your priorities.  It is simply done out of habit instead of spending as a choice.  There are two simple steps you can take with your money that will help you tremendously gain some control back:

  • Give every dollar a job: This will ensure that you’re spending less than you earn.
  • Get control of your habits:  Take a weeks worth of expenses and see where your money is going.  You will no doubt find some habit you really can let go of.  My suggestion would be that coffee habit so many of you have.  Yes, it is tasty and who doesn’t like to sit in that trendy coffee shop and people watch.  BUT, if you want to feel empowered and in control of your finances, take this suggestion to heart.

Be realistic about your expenses

You may be tempted to throw every extra dollar to pay off your debt, but that is just not financially smart.  We all know about unexpected expenses and when the next one creeps up for you, where are you getting that money from?  Probably a credit card, and so the debt cycle begins anew.  When you are in the process of figuring out where each dollar needs to go, make sure you are putting money aside for potential expenses. Take a look at the year ahead and figure out where you are going to need money.  Summer camp for the kids, electricity bill increases during the hot and cold months, an unexpected car repair.  You have to be proactive when thinking about your money if you want to pay off debt.

Get Intimate with your debt

One of the best ways to get out of debt, is to have a clear picture of your debt.  You need to know your outstanding balance and the total of all your minimum payments put together.  This will give you the exact dollar amount you are working with and your job is to shrink that number. Now you need to choose a single debt to focus on as your starting point.

Why you need to focus on one debt at a time

If you are trying to pay off debt across multiple cards each month, you are doing nothing to improve your cash flow. A single debt will never get paid off and you will wind up paying more interest in the long run.  Now you ask which debt to tackle first?  Well not the one with the highest balance.  Remember, the idea is to get a single debt paid off and the one with the lowest remaining balance is closest to freeing up dollars in your budget.

Do you have balances around the same dollar amount?  Here is what you should consider:

  • Focus on the one that has the higher required payment.
  • Choose to pay the one with the higher interest rate.  You will spend less in the end.
  • Any debt with tax-deductible interest like a student loan, you can deal with later.

Come up with a strategy

When it comes to having to pay off debt, you really do need a plan.  It is not just about throwing as many dollars as you can at it.  That will most likely leave you strapped for cash and reaching for the credit card.   So, how do you ensure you are taking care of your priorities while also tackling your debt?

 Your four step process:

  1. While coming up with your budgeting plan, you need to add a line for each minimum payment for every debt you have.  You can’t afford to focus on one debt and miss payments on other debts.
  2. Come up with a dollar amount that will allow you to take care of your other priorities while still making headway with paying down your debt.  You don’t want to try and throw every dollar at it as it will leave you without in other areas.
  3. Once you have covered everything from obligations to savings, take any extra money and put it towards your debt.
  4. Take the time to regularly review your budget.  You may find that you sometimes need to redirect your money.

Once one debt is paid off and you have that money freed up, put it towards the next debt or towards another financial goal.

How to get out of debt using YNAB 

Assuming you have a budget already set up with YNAB, here is one strategy you can use to successfully pay down your debt.  In order to make it work, you have to make a commitment to no new debt. Unexpected expenses can come up at any time, but as a rule of thumb, stay away from accumulating any new debt.  Stay within the parameters of your budget so you can continue to move forward.  

List out your debts


  • List out all your debts – This includes student loans, auto loans, credit card debt, personal loans, and lines of credit.  You also need to include how much you owe along with the interest rates for each and any other monthly fees.  Here is a sample pay off debt worksheet.  List your debt in the order you plan to pay them off.  We suggest starting with the smallest amount first (we discussed why above).

pay off debt

  • Track your debts – Now that you have your debts laid out, you need to add them into YNAB as a tracked account.  This will work as your road map for paying off your debt. We suggest linking your accounts within YNAB.  This means the app can directly pull information from your financial institution. If you don’t link your accounts, you will have to add in all payments and fees manually.
  • Set up payments and monthly fees –  You need to keep track of monthly fees to make sure your debt is not accruing.  You also need to keep track of payments towards your debt. Make sure to set up a group in your budget for Debt Payments.
  • Include a line item for your debt pay off amount – As you are setting up your budget, add in the amount you set for paying down your debts.  You include it just like a regular budget payment.   Then you want to enter your debts in the order you plan to pay them off.
  • Pay attention to extra money at the end of the month – When it comes to accounts like kids activities or ancillary shopping trips for a birthday gift, you may find you have some dollars left over from what you originally budgeted for these items.  That money can go into your Debt Pay Off section of your app.
  • Try out the goal function – In YNAB, you can create goals for your debt.  You can choose either a certain amount to pay each month OR choose By Date and pick a future date to pay off your debt by. YNAB will then calculate how much you need to contribute each month to reach your goal.  Set up a new goal every time one debt is paid off.


pay off debt

Why YNAB is the perfect app for paying off debt

With YNAB, you are just looking at a spreadsheet with line items and what money has already been spent.  It focuses on the money you do have and before you spend it, it has you think through your priorities (short term and long term) so you allocate your dollars accordingly.  It will teach you how to use your budget effectively and how to adjust it as life comes at you.

  • You have complete control over your budget
  • Transactions can be automatically imported
  • Tons of tutorials, support documents and an active user forum
  • Built-in budget accountability
  • 34 day Free Trial
  • Fair Pricing at $11.99 per month