Nearly half of adults reported that their income just about matches their expenses, while close to one-third said their monthly expenses exceed their monthly income, according to a recent Yahoo Finance/Marist Poll survey.
Meanwhile, the average household debt sits at over $100,000 according to the most recent data from Experian.
Wiping out large debts is no easy feat when your budget is tight. Yet, making extra payments beyond the minimums on your debt has several powerful benefits:
Save money on interest: The faster you reduce your balances, the less time interest has to accrue. On high-interest debts in particular (like credit cards), the savings can be significant.
Pay off debt sooner: Every extra payment toward a debt shortens the payoff timeline. For installment loans (such as a mortgage, car loan, or personal loan), even a small extra monthly payment can shave months off the repayment schedule.
Improve credit utilization: For revolving accounts (namely, credit cards), extra payments lower your credit utilization ratio, which can boost your credit score.
Reduce financial stress: A smaller debt balance means you have fewer monthly obligations to worry about. That can give you peace of mind that you aren’t overextended and can better handle financial surprises.
Increase future cash flow: As you pay off your debt, it frees up more money for other priorities such as savings, investing, or big purchases.
So, if you’re working with a budget that doesn’t afford much wiggle room for making extra debt payments, it’s a good idea to look for ways to improve your cash flow.
Cash flow is the movement of money in and out of your bank accounts. Having a positive cash flow means that you have more money coming in than going out, making it easier to save, invest, and pay down debt.
A negative cash flow, on the other hand, means you’re spending more money than you’re bringing in, making it difficult to build any real wealth or hit your financial goals.
In order to tackle your debt, you’ll need to rework your finances so that you have enough cash left over to make extra payments. Here are a few steps you can take.
A budget gives you a clear snapshot of how much you have available to spend on various monthly expenses and how much money you have leftover. If you’re struggling to increase cash flow, having a clear and reliable budget will allow you to identify which spending categories can be cut back.
There are several different types of budgeting strategies you can use to optimize your spending and saving. Ultimately, the key is to choose a strategy that aligns with your financial personality so that you have an easier time sticking to it.
Read more: Your complete guide to budgeting for 2025
Cutting costs isn’t the only way to improve cash flow; you can also increase your income while keeping your spending the same.
For example, driving for rideshare services, freelancing online, tutoring, or delivering groceries can generate a few hundred dollars per month that can go directly toward debt repayment. But it’s OK if you don’t have the time and energy for a side hustle or a second job. It may be time to make the case to your boss that you’re due for a raise, especially if you’ve had some major wins at work or have taken on new responsibilities.
If high interest rates are inflating your payments, lowering them can improve cash flow and help you pay down the principal faster. For instance, you could consolidate multiple debts with a personal loan, which often has lower rates than credit cards. These installment loans also have fixed rates, making your payments more predictable and easier to fit into your budget.
Another option is using a balance transfer credit card with a promotional 0% APR. If you qualify, it can give you a window (typically, six to 18 months) to pay down your balance without interest.
If you’re struggling financially, ask lenders about hardship programs. They may agree to temporarily reduce your payments or interest rates, which can free up cash in the short term to aggressively pay down your debt.
Read more: The pros and cons of refinancing your home
Sometimes, successful cash flow management is a matter of timing.
For example, say you get paid on the 1st and 15th of every month, but your loan and credit card bills aren’t due until the last week of the month. That means you may have little cash leftover to put toward extra debt payments once all of your other bills are paid.
The good news is that most companies will let you move your payment due date. If you get paid biweekly, try to have roughly half of your recurring bills due after your first paycheck of the month, and the rest after your second.
Additionally, it’s helpful to avoid big payment pileups. For instance, if your rent/mortgage, car payment, and insurance bills all hit in the first week of the month, move at least one to mid-month to more effectively spread out your spending.
