Why Money Experts Stand by This One Trick To Keep Credit Card Debt Under Control
Written by
Heather Altamirano
Edited by
Rebekah Evans
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Americans are drowning in debt — $1.2 trillion, as of the second quarter of 2025, according to the Federal Reserve Bank of New York. That staggering figure is up 5.87% from last year. Factors for the rise in debt include economic conditions, inflation and consumer spending habits. But no matter the reason, people need relief.
One way to help manage credit card balances that finance experts swear by is the 20% rule. “[A rule that] recommends keeping long-term debt to no more than 20% of your annual income, and keeping short-term debt to no more than 10% of your monthly income,” explained Jason Pack, debt expert and chief revenue officer at Freedom Debt Relief.
Below is how the trick works and what to know about the 20% rule, according to experts.
What Is the 20% Budgeting Rule
According to SoFi, the 20% rule is a popular guideline that divides your after-tax income into three categories:
- 50% for essential needs (housing, groceries, utilities, transportation)
- 30% for discretionary spending (entertainment, dining out, hobbies)
- 20% for financial goals — either savings (like an emergency fund) or paying down debt
This budgeting method is simple, flexible and encourages a healthier relationship with money by ensuring that a portion of each paycheck is consistently allocated toward goals.
How the 20% Rule Helps Manage Credit Cards
Managing credit card debt can keep more money in your pocket because you can save on paying interest. Not having a high balance on cards also relieves stress, protects your financial health and can improve your credit score, but it’s not always easy to get it under control. That’s where the 20% rule can help.
“The budgeting rule can be effective in paying down credit card debt because it allocates a portion of a consumer’s budget specifically to debt repayment or savings,” said Leslie Tayne, personal finance expert and founder and head attorney at Tayne Law Group. “This structure is beneficial in that it helps the consumer prioritize savings on payday, instead of allowing unnecessary spending to occur.”
It’s important to note that the 20% rule isn’t meant for paying off debt, instead keeping it in check, Pack said.
“To pay down existing credit card debt, strategies like a balance-transfer card, personal (debt consolidation) loan, debt management plan or, in some situations, debt settlement, can be effective,” he added.
Why Experts Recommend the 20% Rule
There are different ways to tackle credit card usage, but many financial gurus believe the 20% rule is the most effective approach because it’s not complicated and it works if you stick with it.
“This strategy can be more effective than others due to its ease of use, balanced approach and psychological benefits,” Tayne said. “The 20% rule can offer encouragement and momentum to consumers who stick to it without making them feel like they are missing out, as 30% of the budget is dedicated to wants and needs.”
This approach also allows for flexibility.
“If the consumer finds their bills equal to more than 50% of their monthly, after-tax income, this budget can be easily adjusted to a 60/20/20 budget,” Tayne explained. “On the contrary, a 40/30/30 budget can be adhered to if bills are less expensive than 50% of the consumer’s monthly income.”
Benefits of the 20% Rule
The 20% rule can really payoff and there’s plenty of benefits when followed:
- Better budgeting awareness. Before utilizing the method, you have to know how much you make and what your expenses are. Tracking where your money goes helps keep you on the right path so when using the 20% rule, you know exactly where you stand.
- Easier to cut back. When you have all of your money accounted for and grouped into the three categories: needs, wants, debt/savings, you can identify where to scale back when needed.
- More goal focused. Whether your goal is paying off credit card debt, saving for emergencies, or investing for retirement, the 20% rule makes progress feel manageable.
The 20% rule isn’t magic — but it’s a helpful tool to stay in control of your money. “Following the rule can help someone budget more carefully and avoid accumulating excessive debt,” Pack added.
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