Do you have debt?  Does it drive you crazy?  Do you stay awake at night wondering how to pay it all off?  Does it feel like you will never pay it off?  Do you argue with your spouse about your bills?

While debt can at times be a useful tool (student loans, for example), when it comes time to pay it back, debt can be a heavy burden no matter if it is good debt or bad debt.  Debt can cause marriage problems and even affect your health.

If you have decided enough is enough, and you want to be free of debt once and for all, you might be tempted to slash your spending and put all of your extra money on your debt.  Be careful, though, because this type of plan can lead to a quick crash and burn much like a person on a crash diet will only follow the plan for a few weeks before giving up.

Before you even begin to put extra money on your debt, you must first create a realistic budget.

What Is a Realistic Budget?

A realistic budget is one in which ALL of your expenses are taken into account.  Perhaps you pay your car insurance every 6 months, and it is $400.  If you want to create a barebones budget so you can pay off debt, perhaps you don’t consider this payment, which can be a mistake.  When the car insurance payment is due, where is the money to pay it?

We have been paying down our debt aggressively, and we made the mistake of not having a realistic budget.  We did have a $1,000 emergency fund, but because so much of our extra money was going toward debt repayment, we continually hit months where we had expenses such as the semi-annual car insurance payment and no cash to pay for it.  We would rob the emergency fund to pay it, and then we would have to stop our extra debt repayment for awhile to build up the emergency fund.  This cycle creates its own stress.

A Realistic Budget May Mean Hard Sacrifices

When you add up all of the payments you have to make in a year that don’t come in regular monthly intervals, you may be surprised.  There is car insurance, house insurance, license plate tabs, vet bills if you have animals, car repairs and maintenance, children’s athletics, and clothing for the family to name a few.  Add up how much you spend on these, and you probably easily have a total in the thousands.

That is thousands of dollars that are unaccounted for in your budget.

Almost a year into our debt repayment, we finally made a realistic budget.  We were shocked to see that when we set aside money each month for a portion of our annual or semi-annual payments (like $67 for our semi-annual car insurance payment), we didn’t have enough income to cover our realistic expenses.  As a result, we had to make some hard sacrifices such as cutting cable completely and pulling our daughter out of her expensive preschool.  These sacrifices weren’t easy, but making them did relieve some stress.  Now we no longer have ups and downs in our money flow.  We set the money aside, and when the bill is due, the money is there to pay it.

We may not be able to put as much on our debt every month, but we have a set amount for repayment above the minimum payment, and any extra money that comes in also gets put on debt.

Creating a realistic budget can help you avoid the stress of not having enough money certain months to pay all of your bills when semi-annual and annual payments are due.  However, you will feel more in control of your money, which can create a positive cycle.  The more in control of your money you are, usually the more money you find to pay on your debt.

What irregular expenses give you financial difficulties?