Even people who rake in six figures can have a tough time managing their debt, let alone consumers who barely make minimum wage. But that doesn’t mean climbing out of debt with a low income is an impossible feat. There are several things you can do to pay off your debt – and quickly – despite earning a low income.
I know first-hand what it’s like to make ends meet on a modest income, and I had a pile of debt to deal with. For the longest time, I thought it was impossible to finally be rid of my debt because I just didn’t have the finances to make that happen.
But I was wrong. It’s definitely possible for low-income earners to get out of debt, or at least minimize it, with a few savvy tactics. And you don’t even have to sell off any valuable assets towards your debt to make that happen. What’s more, it’s even possible to save a little bit of cash at the same time!
If you’re wondering how to pay off debt fast with low income, we have seven solutions that you can apply. Check out the following strategies…
1) Take Inventory of All Your Debt
You’ve got a lot of debt, and you know it. But do you have a clear idea of exactly how much you’re in the hole?
That’s where a good old-fashioned spreadsheet and calculator will come in handy. Knowing how to pay off debt fast with low income starts with clearly understanding where things stand financially. What you need to do first before coming up with a strategy to pay off your outstanding balances is to take inventory of your debt. Not only will this help you identify exactly what you owe and who you owe it to, but it will also help you pinpoint which debt to tackle first.
List all your debts, and be sure to take note of the interest rate, monthly payments, and term length in addition to the amount owed. This will help you determine which debt to hit first and give you the figures needed to create a solid budget.
In addition to this list, make another one that outlines all of your expenses, no matter how minuscule. This will include things like groceries, child care, transportation, utility bills, entertainment, and so forth. Of course, you should also write down exactly how much money you have coming in each month, including any investment dividends, government checks, or any other sources in addition to your income from work.
2) Establish a Budget
Knowing how to pay off debt with low income starts with coming up with a sound strategy to help you achieve your financial goals, and a budget plays a key role here. Everyone needs a budget, especially us low-income earners. We don’t have the liberty of freely spending our money on frivolous things, no matter how tempting that may be. Keeping your finances in order is hard work and takes effort, and one of the more important pieces of the puzzle is a workable budget.
If you don’t already have one in place, now’s the time to get one. Stop procrastinating and take a little bit of time out to come up with a budget that will not just ensure all your debts are adequately covered every month, but that a little more capital is opened up that can be tossed at your debt.
Once you’ve got all of your expenses and debts listed, you will need to allocate a certain amount of your monthly income to each. Having a budget will teach you how to live off your actual income and make sound decisions about your finances. It will also help you cut down on wasteful spending that probably got you into a pile of debt in the first place.
At the end of the day, the amount of money you have coming in should be more than what’s going out. If there is any left over at the end of the month, that should be put towards paying off your debt. If you’re struggling with that number, perhaps there are areas within your budget that can be tweaked, particularly on things such as going out for dinner, the amount you spend on clothing or your morning coffees.
If necessary, you need to live below your means, and not just within it. Now’s the time to buck up and practice some self-discipline that is essential for paying down your debt. If you find this tough to do without any assistance, there are plenty of tools out there to help, like Trim, which helps you automate your savings so you can have more in the pot at the end of each month to put towards paying down your debt.
3) Consolidate Your Debt
Sometimes just slashing your spending on things like your daily lattes or going out for lunch with the work gang won’t be enough to save the money you need to pay down your debt. In this case, you may need to take additional steps to get yourself out of your financial predicament, and that may include taking out a debt consolidation loan.
This is an especially effective tactic if you’ve got plenty of high-interest debt. If you’ve got thousands of dollars in credit card debt, for instance, you’re definitely paying sky-high rates, likely over the 20% mark. That amount of interest on a big debt load can make it extremely difficult to repay the entire outstanding balance within a reasonable amount of time.
In this case, you can make it easier to pay down this debt by refinancing it to get a much lower rate. There are tools and services available that are meant specifically for this purpose, such as Payoff, which can help you slash your interest rate and significantly cut down your payments. It’s pretty simple to do and can give you just enough wiggle room in your budget to whittle down your debt while still living comfortably.
4) Use Cash Only
Odds are, you probably got yourself into debt by using your credit cards a little too liberally. If you’re the type to whip out the plastic at every chance you get, consider tucking it away for a while and only using cash for your expenditures. This can help avoid racking up your credit card balance even more and minimize the interest expenses that come with it.
5) Focus on One Debt at a Time
Instead of overwhelming yourself with all of your debt, focus only on one debt at a time. There are a couple of strategies you can take in order to make your debt pay-off tactic work for you.
The “avalanche” method: With this method, you pay down the debt with the highest interest rate first. It makes sense since a higher interest rate makes the debt more expensive. Once you’ve paid that initial high-interest debt off, you start working on the loan with the next highest interest rate. All the money you were using towards paying the first debt off can now be put towards the next debt load.
The “snowball” method: Rather than focusing on the higher-interest debt, this method would involve paying off the smallest debt first. This method is meant to boost your motivation since it would take less time to pay off a smaller debt balance compared to a larger one. Once you pay off that first debt, you’ll be more inspired to continue until all of your debt has been dealt with.
No matter which method you choose, you’ll still need to continue to pay all of your other debts, even if they’re just minimum payments.
6) Cut Down on Transportation Costs
You’ve got to get from A to B somehow, whether it’s by car, bus, or taxi. If you’re lucky enough, you can walk or even bike to work or wherever else you need to go. But if you’re dependent on other paid forms of transportation, that might be an area you may want to look at in terms of saving money.
Some companies subsidize public transportation costs for their employees, so it may be worth it to inquire about whether or not such programs exist.
If you drive to work, consider carpooling with another employee who may live in the vicinity of your home. You can also do the same with your partner if the commute to work is somewhat similar.
Carefully plan your outings, and don’t head out any more than you need to. If you can get everything done in one weekly outing as opposed to three, for example, then aim for that. Every trip you cut back on can save you in gas and wear and tear on your car.
Whenever possible, consider walking or biking to wherever you have to go. Obviously, you’ll be saving on gas, but you’ll also have the extra perk of getting a little bit of exercise, too! As an added bonus, you’ll be minimizing your carbon footprint while you’re at it.
7) Take a Side Job
You work hard enough, so the thought of having to work even more can be an unsettling thought. But sometimes you’ve got to make the hard decisions in order to create a better life for yourself. It doesn’t have to be forever, either, and it doesn’t have to mean flipping burgers at the local fast food joints on the weekends.
There are plenty of savvy and easy ways to make a few extra bucks here and there. Maybe you’ve got a hidden talent that you can serve to others who are actually in need of what you have to offer. Whether you’re good at content writing, photography, creating websites, or producing videos, you can sell your services on websites like Fiverr.
There are plenty of other creative ways to make money, many of which can be done from the comfort of your own home. Consider taking online surveys, becoming a mystery shopper, or even playing online games for money. Yes, you can actually shop and play video games and make money doing so!
Regardless of which avenue you take, be sure that all of that extra cash you make on the side is funneled directly to paying off your debt.
You could downsize your house, move to a cheaper city, rent out a room in your house, or sell off your car to save money and put it towards paying off your debt. But while these tactics would definitely work, you don’t always have to take such drastic measures.
If you’re wondering how to pay off debt on a low income, wonder no longer. Take these steps to finally achieve that highly-coveted financial freedom you’ve always dreamed of, no matter what your paycheck says.