Say Goodbye to Living Paycheck to Paycheck: Dealing with Debt


This post is part of a series.  To start the series from the beginning, click here.  To browse through the series, click here.

Debt is one of the main reasons so many people live paycheck to paycheck.  Unfortunately, there is no quick solution to debt.  You can however be smart about your debt.

Some things to consider when evaluating your debt include the amount of debt, interest rate, and debt sources.

Create a list of your debt:


Debt Source Interest Rate Total Debt
Student Loan 3.5% $20,000
Credit Card 1 20% $7,000
Credit Card 2 13% $3,000
Car Loan 8% $5,000

Looking at the combined debt of $35,000 here can be very overwhelming.  Before attempting to tackle your debt, you need to create a plan.

Let’s sort the debt based on interest rate.

Debt Source Interest Rate Total Debt
Credit Card 1 20% $7,000
Credit Card 2 13% $3,000
Car Loan 8% $5,000
Student Loan 3.5% $20,000

The larger the interest rate, the more money you are paying to keep that account open.   Notice that the student loan has a significantly lower interest rate than the credit cards.  This means that this debt does not cost as much to keep per dollar as the other debt.  Additionally, student loans and home loans are considered Good Debt where car loans and credit cards are considered Bad Debt.

Good debt is an investment or something that will grow over time.  An education will cause your knowledge and income to grow and a house will appreciate over time.

Bad debt is a debt that cannot be recovered.  Over time, cars lose value.  Similarly, items purchased on a credit card lose value over time.

There are two main ways to tackle debt.  One way is to pay off the one that has the highest interest rate first.  This way, you minimize the fees you are required to pay.  The second way is to pay off the debt with the lowest amount first.  Neither way is better than the other, it is all up to preference.

Once you decide which way you are going to pay off your debts, focus only on the debt you chose to pay off first.  Of course, still make your regular payments on all of your debts.  But, think in baby steps.  The goal is to pay off one debt.

Make sure to keep enough money in an emergency fund while paying off debts to ensure that you don’t incur more debt.


Each month, use your new budgeting system and instead of having a category called ‘savings’, call that category ‘debt’.  The money that is allocated for savings will go towards paying off the debt.  The first debt is the hardest to pay off because it seems to go the slowest.  Don’t give up.

Once your first debt is paid off, give yourself a pat on the back.  Great job!  Now, pick the next debt to tackle.  This debt will seem to go faster because you can not only apply the minimum payment that you’ve been making to the account, but you can also apply the money that you had been putting towards the first debt.

Once you have your bad debt paid off, you can pay off your good debt monthly or apply some extra funds to your payment each month.  Good debt is nothing to stress about and is normal.  At this point, it is more important to have a substantial savings account than to have zero debt.

Begin adding some money back towards savings every month.  If your savings seems to be growing very quickly and you want to drop a large amount onto the loan, feel free!  This is great news!  You are living well within your means!

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Reconciling your Savings

Last week, we discussed how to reconcile your checking account based on your projections.  This week, we will begin reconciling the savings account as well.


In our projections example, the first month we transfer to the savings account is April.  To reconcile this transaction, begin by reconciling the checking account the same as previous months.

When you get to the ‘Transfer’ line, C37 in our example, we will use an equation to get the total amount to transfer.  You could also grab the transfer amount from the Projections page but I prefer to use the equation because it acts as an extra check point.

Because we want to keep $1500 in the checking account at all times, we want to transfer everything over $1500 to the checking account.

To do this, subtract $1500 from the running total.  This is the amount that you want to transfer.  Make sure to put this amount in as a negative amount since we will be taking it out of the account.

Here’s the equation:

  • =-(D36-1500)


Add a tab titled ‘Savings’ and create the same header as we did for the checking account.  Add the Transfer as the first transaction.  Continue adding on for following months.


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Reconciling Your Monthly Expenses

Last week, we learned how to use our spreadsheet to build a savings account or rainy day fund.  This week, we will use our spreadsheet to reconcile our monthly balance of the new checking account.

Let’s begin by labeling our tabs.  I’ve labeled our current worksheet ‘Projections’ and then labeled a new worksheet ‘Checking’.


Open the Checking account tab and begin by building the headers.  I started my labels in cell A1 and used the following labels:
A1: Date
B1: Transactions
C1: Amount
D1: Running Total

I also made my row 1 Bold because I find it easier to read the table if my headers are bold.


From there, we will add the information from our ‘Projections’ tab into our checking account.  It is assumed that all transactions that occur throughout the month are done through the checking account.

The order of the transactions here doesn’t need to match the order of the transactions in the projection’s tab.  Use the transaction date to create the order for your transactions.

To enter the amounts, I use a function rather than entering them by hand to avoid errors in typing.  For income, I type the equals sign, click on the projections tab, then click the cell I want.

  • For Paycheck 1, the equation would look like this:  =Projections!B3

For expenses, I use the same process but add a negative before clicking projections so the amounts will be debited from the account

  • For January’s Rent, the equation would look like this: =-Projections!B8

To fill in the running total (I made all of column D bold), we need to start by pulling our first transaction.  To do this, type the equals sign, then click on C2 in the same tab. You can also type the equation =C2.  This is the only cell you will use this equation.

In cell D3, type =D2+C3 or click on the cells to add the cell numbers to the equation.  This will take the previous balance in the checking account and the new transaction.  Fill down using the methods discussed earlier in the excel budgeting series to complete your running totals.

Make sure that your end balance for the month is the same as the end balance for the month in the Projections tab.  (This example’s end balance is $475.20).  If they are not the same, your account does not balance and the transactions need to be double checked for accuracy.

Use the same process to add additional months, making sure to double check your totals. In the above example, I added February and March.  Next week, I will show how to include the transfer to the savings account that happens in April of our example.

Side Note:  I also like to use colors to separate my months so I can quickly glance and see the entire month.

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