As we step into 2025 – the cost of living crisis still ongoing – many people are carrying financial burdens that feel increasingly heavy. Rising living costs, unexpected expenses, and ongoing economic uncertainty have pushed many households to rely more heavily on credit, creating a debt situation that can seem difficult, if not impossible, to solve.
But here’s the important thing to remember – your financial situation is not a life sentence. With the right strategy and a bit of commitment, you can take control of your finances and start making meaningful progress towards becoming debt-free.
With this in mind, here at MoneyPlus we’ve put this guide together to be your practical companion in managing debt and creating a sustainable budget as we head into the New Year. We’re not about quick fixes or unrealistic promises – just straightforward, actionable advice that can help you make real changes to your financial health. So if you’re looking to turn over a new financial leaf in 2025, read on…
Why is budgeting important?
Financial management isn’t just about numbers on a spreadsheet – it’s about creating a meaningful relationship with your money. In today’s particularly challenging economic landscape, budgeting has become far more than a mere financial tool – it’s a critical life skill that can empower you to make better financial decisions, reduce stress, and work towards your long-term financial goals.
Think of a budget as your financial SatNav. Just as you wouldn’t start on a long journey without a map, trying to make your way through life with no financial plan can lead you off course. Budgeting provides that essential roadmap, helping you understand where your money is coming from, where it’s going, and most importantly, how to direct it towards your most important priorities.
By creating a structured approach to your money, you can:
- Gain clarity about your financial situation
- Take control of your spending habits
- Develop a strategic approach to achieving financial goals
- Reduce financial stress and anxiety
- Create a clear path to debt reduction.
Can budgeting help with debt?
Absolutely! Debt can feel like a heavy weight on your shoulders you just can’t shake off. But budgeting can act as a toolkit for lightening that load. As we will look at below, it might not be the only tool you need to help regain control of your finances, but it can provide a great starting point.
In this vein, budgeting isn’t about instant miracles, but about creating a strategic approach that gradually chips away at what you owe. When you budget smart, you’re not just managing money, you’re developing a game plan for financial freedom.
By implementing a solid budget when in debt, you can:
- Find those sneaky spots where you’re wasting money
- Redirect more cash towards paying off debt
- Build an emergency fund to prevent future debt
- Stop living paycheck to paycheck
- Gain a clear understanding of your financial landscape
- Reduce the stress and mental burden of financial uncertainty
- Create a path to long-term financial health.
How to budget to get out of debt
January isn’t just another month – it can be a financial fresh start. As we enter 2025, you’ve got a perfect opportunity to hit the reset button on your financial habits. This isn’t about making impossible resolutions, but about taking stock and creating a sustainable plan that actually sticks.
Think of 2025 as your personal financial transformation year. The goal? Turn those overwhelming financial challenges into a clear, actionable plan. To help you prepare, below we break down your approach into practical, month-by-month strategies that make sense for the real world.
Track your income and expenses
Before doing anything else, you’ll need to sit down and take stock of your current financial situation. Many people struggling with significant debt don’t have a clear idea about where their money actually goes – this has to be the first thing to change.
To do this, grab everything financial – bank statements, pay stubs, those random receipts hiding in your drawer – and put it down on paper or in a spreadsheet. Don’t worry if it looks messy at first. Everyone starts somewhere, and awareness is the first step to change. Once you have done this, you can establish what your regular monthly income is and then start to separate your outgoings into ‘priority’ and ‘non-priority’ expenses.
To help get you started, here is a schedule for you to follow in the first month of 2025:
- Week 1 (January 1-7): Collect ALL financial documents
- Week 2 (January 8-14): Track every single expense
- Week 3 (January 15-21): Categorise and analyse your spending
- Week 4 (January 22-31): Create your initial 2025 budget draft.
Prioritise debt payments
Once you have a clear understanding of your financial situation, it’s time to focus on debt repayment. Prioritise your debts by interest rate, starting with the highest-interest debts (credit cards, payday loans, etc.) to reduce the amount you’re paying in interest over time. Alternatively, if you need small wins to build momentum, start with the smallest debts and work your way up – this is known as the snowball method.
Set a specific amount you’ll allocate each month to debt repayment and include it in your budget. This is your non-negotiable payment goal. By making consistent progress, you’ll begin to feel more in control of your finances.
Cut down on non-essential spending
This is where real change begins. Review your expenses for areas where you can cut back. Can you swap dining out for cooking at home? Cancel subscription services you barely use? Choose more affordable alternatives for your regular purchases, like using supermarket own-brands rather than the more expensive market leaders? You will likely be amazed how small changes add up to big savings.
Every pound you save from non-essential spending is money you can redirect towards paying down debt. Even cutting just £50 per month from discretionary spending can make a big difference over time
Create a realistic monthly budget
Now that you’ve tracked your expenses and identified areas to cut back, it’s time to create your budget. Include categories for:
- Income: Salary, side hustles, and any other sources of income
- Fixed expenses: Rent/mortgage, utilities, insurance, minimum debt payments
- Variable expenses: Groceries, transportation, entertainment
- Debt repayment: Allocate as much as you can realistically afford
- Savings: Even a small amount can help build financial security.
The key here is to make your budget realistic and sustainable. Unrealistic budgets often fail because they’re too restrictive. Leave some room for flexibility, but remain committed to your goals.
Set goals and track your progress
It’s all too common for New Year’s resolutions to fall by the wayside a few months in. To help you stay on the straight-and-narrow in 2025, set both short-term and long-term financial goals to keep yourself motivated. For example, a short-term goal could be paying off a specific credit card within six months, while a long-term goal might be becoming completely debt-free within three years.
Track your progress monthly throughout 2025 too, making sure you celebrate small victories like paying off a single debt or sticking to your budget for a full month. These milestones will reinforce your commitment and show you that your efforts are making a difference.
Could a debt management solution help?
In the right circumstances, and if your debt feels overwhelming despite your best budgeting efforts, seeking professional debt management help is definitely something to seriously consider.
At MoneyPlus, if you’re finding it difficult to stay on top of your finances heading into the New Year, our team of experts is here to help. Whether you’re looking for guidance on creating a sustainable budget, advice on Debt Management Plans, or exploring Individual Voluntary Arrangements (IVAs), MoneyPlus offers the tools and support to help you regain control of your finances.
Get in touch with us today to start the year with a fresh financial perspective and a plan for a healthier financial future.
