What to do if you make $200K a year and have $400K in debt or more! And actually the strategies and information I share in this insight can apply to many situations where someone’s income is less than half of their debts.

Earning $200,000 a year sounds like you should feel financially free. But $400,000 in debt can feel like a heavy anchor.

You’re not alone. Many high earners find themselves overwhelmed by debt they thought they could easily manage. The good news? 

You can fix it. You just need a clear, focused plan, and the commitment to stick with the plan.

Let’s discuss how you can take control of your finances starting today.

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Understand Your Full Financial Picture

The first step is simple: know exactly where you stand. When you make $200K a year and have $400K in debt.

At this point you may be saying, and I often hear… “We don’t know what to do”, “We have so much debt”, and “We don’t have a plan or know where to start”.

Understanding the full financial picture means understanding where you are spending your money. Establish an emergency fund, and organize your plan of action to align with both your goals and values.

I have a full explainer on emergency funds, how to establish, and alternative strategies for your emergency fund. Read the insight here.

Now that you have the emergency fund in place or at least have an understanding on how you are going to fund and maintain your emergency fund. Let’s discuss your debt and income.

Let’s look at your debt and income 

The biggest shock often comes from seeing the total debt all in one place. So start with listing out all of the debts. 

Consider the following example:

Make a list of every debt you have:

• Credit cards
  
• Student loans
  
• Mortgage(s)
  
• Car loans
  
• Personal loans
  
• Business debt
  

Consider your net income

Next, let’s consider your income. After taxes, insurance, and retirement contributions, your $200K salary may look closer to $120K–$140K net income.

Need help organizing your finances? Check out our guide on unlocking your financial future through goal setting.  Get your complementary copy today. 

You need a real, honest snapshot. No guessing. No rounding.

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Calculate Your Debt-to-Income Ratio

Your Debt-to-Income (DTI) ratio is a key number lenders and advisors use to assess your situation.

Here’s the quick math:

DTI=(Total Monthly Debt Payments) / Gross Monthly Income) × 100

Example:
If you pay $5,000 per month toward debt and earn $16,667 gross monthly, your DTI is about 30%.

Ideal DTI (debt to income) ranges:

• Under 28%: Lenders prefer
  
• 29–49%: Consider reducing
  
• 50%+: Action required
  

A high DTI can limit your financial flexibility and future borrowing options. Therefore, reducing your debt to income from half ($400K in debt and $200K in income) to less than that amount.

For example, if you reduced your debt payments to $3,000 (from $5,000) and still had your monthly income this would provide you with the lower DTI number. 

However, debt to Income ratio is not the be all and end all for paying off your debt. Now let’s consider prioritizing your debts in a strategic manner. 

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Prioritize Your Debts Strategically

Not all debt is equal. Focus your energy where it counts most. The following are the proven ways to tackle debt strategically. 

Tackle High-Interest Debt First

Credit card debt, personal loans, and any debts over 7% interest need to be priority one. Every extra dollar toward these debts saves you significant money long-term.

Related: Avoid these common saving mistakes when planning your financial future.

Use the Avalanche or Snowball Method

• Avalanche: Pay highest interest first (saves more money, with all else being equal).
  
• Snowball: Pay smallest balance first (builds momentum faster, with all else being equal).
  

Both work. Choose the one you’ll stick with.

Personal tip:
As I was playing off debts personally, I focused on the snowball method because it allowed for quick wins that compound overtime. Until eventually paying off all consumer debts.  

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Create a Lean, Purpose-Driven Budget

You don’t need to live on beans and rice. But you do need a budget that reflects your priorities.

This budget can start with your essentials and potentially increase to include your discretionary spending.

Starting with essentials:

• Housing
  
• Food
  
• Transportation
  
• Insurance
  
• Savings
  
• Debt payments
  

Cut the rest by 20%–30% if you can. If you can start small, cut by 1%.

And that means exactly the way it sounds. Reduce your overall expenses by 1% and increase over time. 

Where are the areas in your existing budget that you can cut and reduce?

Need a simple starting point? Read our 7 Budgeting Tips for Non-Budgeters. Also, check out the youtube video discussing this insight as well. 

Examples of where to cut when you make $200K a year and have $400K in debt

Look at every subscription, luxury, and impulse purchase. Ask yourself: Does this support my bigger goal of financial freedom?

If not, eliminate or reduce the expense. This reduction will free up additional resources to apply to existing debts to pay them off sooner. 

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Maximize Income Opportunities

Sometimes, the best budget fix is earning more. Not always easy to obtain but if possible can help to allocate those additional funds to debt payments.

And not increase your lifestyle. As you continue to work through this plan to reduce your debt , it is possible that opportunities to earn more money will attract you, because of your clarity and discipline related to money. 

The following are areas that you can consider for areas to contribute to debt payoff. 

Look at:

• Bonuses and commissions
  
• Raises and promotions
  
• Side hustles or consulting
  
• Selling unused items
  
• Passive income strategies
  

Consider this scenario, someone decides to deliver pizzas in the evening and weekends to earn more money and allocate this additional earning to pay off debt. And build on your progress for your financial goals.

Important: Avoid lifestyle creep.
New income should fuel debt payoff and savings, not new spending. The goal is not to increase your lifestyle while paying off debt. 

We pay off the debt first, and increase lifestyle later. 

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Consider Debt Restructuring Options Carefully

If your interest rates are punishing, restructuring may help with debt payments. 

Options include:

• Refinancing mortgages at lower rates
  
• Consolidating high-interest loans
  
• Negotiating directly with lenders
  

Be careful. Not all debt consolidation services are trustworthy.

Watch out for upfront fees or promises that sound too good to be true. When in doubt, get a second opinion from a fee-only financial planner.

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Debt Payoff Then Build Wealth

Now that you have a plan for the $200K of income and $400K of debt let’s not take the foot off the gas. Meaning let’s keep going, you have built the strong momentum to diligently pay off debt. Now the debt is eliminated or virtually minimized, let the wealth building begin.

Aggressive debt payoff is smart, now build on your savings.

Always:

• Maintain an emergency fund (3–6 months expenses).
  
• Contribute enough to get full employer retirement matches.
  
• Invest extra cash thoughtfully.
  

Learn how much you should save for retirement to earn $80,000 a year just from interest.

Within the above link there is a calculator as well. Even during debt payoff, a little investing now can grow significantly over time.

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Monitor Your Progress and Adjust

Debt payoff is a marathon, not a sprint. Track your progress monthly and adjust when needed.

Set clear milestones:

• Pay off $50K within 12 months
  
• Eliminate all credit card debt within 24 months
  
• Cut DTI to under 30% by 48 months
  

And celebrate wins! Every extra payment is one step closer to financial freedom.

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Final Thoughts: Your Debt Does Not Define You

Debt at $400K feels huge, but it does not define your future.

With clear goals, a practical plan, and steady progress, you can turn your situation around. I’ve seen clients in even deeper holes become debt-free and build lasting wealth.

You have the income. You have the ability.

You just need the roadmap, and the discipline to follow it.

Ready to take your next step? Start by organizing your financial life using our 7-step method.

Are you ready to turn the page to a new chapter in your financial story?

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Related Resources:

• How Much Can I Give My Kids Before Paying IRS Gift Tax?
  
• Emergency Savings Goals: Why It Matters
  
• Maximizing Your After-Tax Returns: Advanced Strategies for High Earners
  

Inflation Strategies for Financial Resilience