How to pay off debts fast on a low income?

No matter what your income is, paying off debt requires work and regularity. And yes, getting out of debts on a strict budget may require more planning, but it’s not impossible. Setting goals and sticking with them will allow you to pay the loans sooner than you think. 

Figuring out how to get out of debt with a low-income stream is no easy feat. While some “financial gurus” suggest you cut back on lattes and avocado toasts, which will not make a difference on your debt-payment schedule or savings. Many people want to get out of debt but find themselves overwhelmed.

According to the stats, Americans owe $5,221 and $17,064 on average in credit card and personal loan debt, respectively. Add car payments, medical bills, education loans, home loans, and other forms of debt to the equation, and you will find it even more challenging to free yourself from the overwhelming debt situation.

Cutting down your expenses might keep you on track only for the short term, but there are other, perhaps more effective methods and steps to manage your debts on a low or limited income.

Here are the strategies you can employ to turn your dream of debt-free life into reality, but remember that the best way to get out of debt depends on your financial situation and the discipline of repaying them. 

HOW TO PAY OFF DEBTS WITH A LOW INCOME?

These steps and methods will assist and guide you to tackle your debts with a positive mindset keeping your income level in check.

• Stop acquiring new debts.
• Know how much you owe.
• Create your budget.
• Cut your spending.
• Find ways to earn more money.
• Utilize the debt snowball or debt avalanche method.
• Negotiate with your creditors for better rates.
• Explore debt relief options.
• Don’t neglect your emergency fund.                                                                                                    

1. Stop acquiring new debts.

Taking on new debts to pay off your old ones will not help reduce the burden. It will seem like you are shuffling the debt around instead of paying it off.

This step may be difficult if your monthly expenses are higher than your paycheck, but it will be good if you stay away from new debts to live a debt-free life as soon as you dream. Charging necessary expenses on credit cards and taking a personal loan you can’t pay off will only add to your debt burden. 

Tip: Avoid high-interest debts like payday loans, as these loans often trap consumers in a cycle of debt that’s difficult to escape. 

2. Know how much you owe.

Before tackling your debt burden, you should know exactly how much you owe. Create a credit report consisting of your loans from the start date to today. This report will help you list your debts, break down the information about your lender and loan amount, and remember to add your credit card loans. 

Tip: Use budgeting apps like Mint and Goodbudget that log into your bank accounts and keep track of the balances. 

3. Create a budget.

Now that you have the debt list in your hand, start preparing a budget to compare how much of your money goes out each month to cover minimum debt payments and living expenses to how much income you have. You can use the budget apps mentioned above to automate your budget or work on your budgeting spreadsheet. 

Use the 50/30/20 budget method to keep your finances on track:

50% of your income should go to basic needs like groceries and other necessary expenses. 

30% of your income should go to wants like dining out, weekend vacations, and other entertainment expenses. 

20% of your income should go to debt repayment and savings, retirement savings, and an emergency fund.

Once you have listed household expenses and other expenses, check for the leftovers to pay your debts. If nothing is left to pay, cut your expenditure in the wants category if possible.

4. Cut your spending.

To keep up with your debt payments, reduce the expenses on categories such as rent, transportation, etc. There might be some lifestyle changes you can make to add a room to your budget. 

In general, stop spending unnecessarily on unwanted things. If you can manage it without spending much, there will be more savings, and one day you will get out of debt. 

5. Find ways to earn more money.

While saving money is one side of the coin when it comes to taking control of your finances, the other side is earning more. If you have time, try to find some ways to make more money. Some side hustles or offering a service or freelancing will help to add some to your finances. There are lots of ways to earn extra cash, and you use this additional money to pay your debt.

6. Utilise Debt Snowball or Debt Avalanche method.

These are the two most useful strategies for paying off debt ahead of schedule.

Debt Snowball: Pay off your smallest debts first while making the minimum payment on your other debts. 

Debt Avalanche: Pay off high-interest debt first while making the minimum payment on your other debts.

7. Negotiate with your creditors for better rates.

If the interest rate on your debt is difficult to keep up with, you can negotiate with your lender for better-reduced rates. Try calling your creditors to negotiate a lower rate. You will get a positive response if you’ve kept up with the payments in the past.

8. Explore debt relief options.

Consolidate your debt by rolling your multiple debts into one monthly payment. Here are a few ways to consolidate: 

• A Balance transfer credit card.
• A personal loan.
• A student loan consolidation.
• A debt management plan.

9. Don’t neglect your emergency fund.

You don’t have to choose between getting out of debt and saving up. Starting an emergency fund is important for getting out of debt. If you don’t have any savings set aside when disaster strikes, it’s easy to fall further into the cycle of debt with just one financial setback. 

Even if you have a low income, getting out of your debt doesn’t have to be far-fetched. Instead, follow these strategies and start making strides toward eliminating those pesky balances. Ultimately, taking action sooner than later will help you improve your credit score and get one step closer to attaining financial freedom. 

Plan: Save: Achieve