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Borrowing and Debt Reduction

Practical and Pragmatic Ways to Pay Down Debt

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Chances are, you or someone you know has some kind of debt.

For many people, it can be a source of stress and, for some, it’s an overwhelming financial burden. Debt can also affect your credit score and make it harder to finance the things you want. And it can also be a potentially embarrassing or difficult topic to discuss.


Here’s the good news: you can conquer your debt, and we can help you get started. We have a number of different budgeting solutions designed to help you take control of your spending and pay down your debt once and for all.

Tips for paying down debt

Whether you have student loan debt, a hefty car or mortgage payment, the way you manage your debt will be the same for each loan. And the first step to tackling such debt is to create a budget. This will provide the foundation you need to pay off your debt in an organized and timely fashion.


Step 1: Build a budget. This will help you oversee all the money you have coming in and going out from month to month (or even week to week). Understanding what you have to work with is crucial to managing your spending and creating a plan you can stick with.1  And if you’re not sure where to begin, use our calculators to gauge how to budget in a way that makes sense for your life.


Step 2: Cut back on spending. Comb through all of your expenses and see if there is anything you can give up in order to put more money toward paying off your debt. Consider your streaming services, whether you can step down to a more affordable smartphone or watch, get a less expensive car or car lease or scale back on food delivery and eating out.


Step 3: Limit the number of credit cards you use. This can help narrow down your spending and keep expenses in one place. 


Step 4: Set a debt-payoff goal that fits you. You don’t want to be too aggressive and set yourself up for failure or pick a plan that you know you’ll cheat on. Creating a realistic approach to paying off debt will set you up for success. Don’t focus on the total debt amount, but instead break it up into what you can afford to pay off month by month. Use our budgeting calculators to help you determine your monthly payment plan. If there are any changes to your income during this time, while you still have debt, make sure to come back to this calculator and update your payment plan based on the increase or decrease in income. 


Step 5: Consider debt consolidation. Rolling multiple debts into one payment—ideally with a lower interest rate—through debt consolidation can make your debt easier to manage and less expensive overall. The less you have to pay in interest, the more money you can put toward reducing the underlying debt. A zero-interest balance-transfer credit card or a debt-consolidation loan are two solid options for debt consolidation. You will need good credit to qualify.

Methods for budgeting

50/30/20 Rule

This is an easy way to allocate funds while you’re paying down debt. According to the 50/30/20 rule, you should spend your after-tax income as follows:

  • 50% on must-haves
  • 30% on wants
  • 20% on savings and paying down debt


This rule, created by Sen. Elizabeth Warren and her daughter Amelia Warren Tyagi, is simple and effective. This method is used for big-picture budgeting versus specific line items. Here’s how to do it:


1. How much do you make? Calculate your after-tax income (how much money you bring in after taxes). You should also include any supplemental income.


2. Where does your money go? Start by looking at your expenses from the previous month. Then divide all your purchases into three buckets: Wants, needs and savings/debt. Below are some examples of where different items would be bucketed.


Some examples of these buckets include:



  • Housing
  • Utilities
  • Groceries
  • Phone/internet
  • Medical care
  • Insurance
  • Transportation
  • Child care
  • Property taxes
  • Legal obligations (like child support or alimony)
  • Contractual obligations and payment plans (gym memberships, appliance payments, etc.)
  • Minimum loan payments (student loans, car loans, etc.)



  • Eating out/takeout
  • Gifts
  • Entertainment (movies, shows, concerts)
  • Streaming services
  • Country club dues
  • Massages and beauty treatments
  • Hobbies and lessons
  • Other nonessentials



  • Monthly contributions to retirement accounts
  • Other savings or college-account contributions
  • Extra debt payments (beyond the required minimum payments)


Once you divide everything you spend money on into these three buckets, you can determine where you’re spending each dollar each month. Evaluate where you could make changes to better align with the 50/30/20 rule. You can use this payment calculator to help you make adjustments to different categories.


3. How can you spend wisely? If your spending is not aligning with the 50/30/20 rule, reallocate spending until you have things evened out. It might be helpful to create a separate account for each category, and allocate funds directly into their separate buckets. Consider high-yield savings accounts, so your money can grow while you’re budgeting.


4. Are you staying on track? Review your spending at the end of every month. Are you putting 20% toward savings and debt repayment? Revise the plan as needed. Once you get comfortable with your budget and plan, you can drop down to an annual review instead of monthly. 


This method is great for beginners and big-picture budgets. Consider consulting with a talented Flagstar banker for one-on-one assistance or questions. 


The envelope system

This is a cash-based approach that can help you if you’re struggling to control impulse purchases. Here’s how it works: For each spending category, assign a set limit, then put the exact amount of cash for that category in an envelope. So if, for example, you’ve set a $200 spending limit for groceries, you would put $200 into a grocery envelope, and once the envelope is empty you can’t spend any more money on groceries until the next month. Do this for all categories: gas, health and wellness, restaurant meals, etc. Using tactile cash makes this a physical challenge versus looking at numbers on-screen or using your credit card, and can train your brain to understand the limits to your spending better than looking at account balances online. “Cash is king” if you struggle in a particular category. The primary downfall is this method can take a lot of work up front every month.3


This technique is also a great way to help you avoid going into more debt and helps you avoid overdraft fees. It aids in curbing spending and making impulse purchases, because you can make a physical and visual connection between how much money you have and how much you have left to spend. 


Build up your savings

With this method, you put savings before everything else. So, for instance, at the top of the month, you take the money you want to save and put it toward your high-yield savings account, IRA, debt, etc. Only then do you look at the rest of your budget and determine how to allocate it toward necessities and fun money. This is a reverse budget that puts savings before your immediate expenses. You decide how much you would like to set aside from your monthly income, but keep it focused. Start by creating a short-term savings plan and a long-term plan. Saving for retirement and building an emergency fund should be the top priorities.4


“The pay-yourself-first budgeting method is low maintenance compared with others, such as zero-based budgeting. It doesn’t require you to categorize every expense or keep a detailed record of your spending,” according to Lauren Schwan, a finance writer for NerdWallet.4


It can also help you focus on the big picture and reduce impulsive purchases. When people save first, they have less money to spend and tend to use the remainder on things they actually need or value.


The zero-based budget

With a zero-based budget, every single dollar has a job to do. At the beginning of the month, you allocate each dollar to a specific item: whether it’s your bills, your debt or your dining-out budget. It forces you to spend deliberately—even on fun stuff. It helps guide and focus your purchases by giving you parameters. If you know you have precisely $100 to spend on new clothes this month, you’ll shop with that in mind and (hopefully) avoid overspending, as that would be spending money you don’t have.


According to Lauren Schwan, “This method allows you to put every dollar you make into a bucket. You take your monthly income and use every dollar in a deliberate way—like saving a certain amount for a trip and paying for utilities and groceries—until there are zero dollars left. But if you don’t strictly use cash as with the envelope system, you’ll have to log each expense to make sure you’re on budget.”

One-on-one support


At Flagstar we offer one-on-one support at our branches. We’re always here to answer your questions and get you set up with a budgeting plan that works for you. We believe that budgeting is very important and we want to be able to support and educate you every step of your financial journey. Visit a branch or call us anytime to discuss your budgeting goals.


Consolidate debt

If you’re dealing with multiple debts, you may want to consider debt consolidation or combining all of your debts into one single loan. Depending on your payment strategy, this might be an easier way of tracking your payments. This could also lead you to pay off debt for a longer period of time.


Build an emergency fund

While you’re paying down your debt, don’t forget to build an emergency savings fund. Your emergency fund exists to help you tackle any unexpected bills that may arise—issues with your home or your car, medical expenses, etc. These surprise expenses can derail your hard work paying off your debt if you don’t have savings set aside to handle them. Many financial experts recommend savings 3–6 months’ worth of living expenses. But a good place to start is by saving up $1,000.5

Pay down debt in the way that makes the most sense to youuild an emergency fund

In the end, you’ll need to find a debt-repayment strategy that works with your goals, lifestyle and personal approach to money. Focus on progress, not perfection, and don’t be afraid to experiment with different budgeting methods to find one that makes sense for your life. And remember that we’re always here to help you navigate your debt so you can reach your financial goals.

Still have questions?

Give us a call.

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1Hoyt, Bobby. “Six Tips for Paying Down Debt.” Regions.


2Yale, Aly J. “How the 50/30/20 Budgeting Rule Works—and Can Help Simplifying How You Spend Money.” Fortune Recommends, January 5, 2023.


3Schwahn, Lauren. “How to Choose the Right Budget System.” NerdWallet, December 16, 2022. ​​


4Schwahn, Lauren. “Zero-Based Budgeting: Spend Every Penny but Meet Your Financial Goals.” NerdWallet, November 10, 2022.


5Cruze, Rachel. “A Quick Guide to Your Emergency Fund.” Ramsey, July 14, 2022.