How To Get Out of Debt On a Low Income
Written by
John Csiszar
Edited by
Emily Gadd
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While living paycheck-to-paycheck is not the ideal scenario for getting out of debt, with some dedication and patience, you should be able to find your way out of your debt hole. Here are the things you’ll need to do.
Understand Your Debt Situation
You can’t deal with the problem of debt until you know where you stand. Make a list of all of your debts and interest rates. Then, figure out any immediate ways you can stop taking on new debt.
Create a New Budget
Tracking your spending is the first step in making a budget. For a month, keep a list of every dollar you spend.
At the end of the month, sort your expenses into needs and things you can cut. This will help you prioritize paying off your debt. You can also use a budgeting app or a spreadsheet to help you sort through everything.
Pick a Repayment Strategy
There are two primary debt repayment strategies that are often cited by financial planning experts: the debt snowball and the debt avalanche.
Debt Snowball
Under the debt snowball, you’ll attack your smallest debts first. The idea behind this concept is that as you start getting rapid “wins” by knocking off your small balances, you’ll gain momentum and continue paying down your larger balances.
Debt Avalanche
Under the debt avalanche, you’ll choose the option that makes more mathematical sense — paying down the debt with the highest interest rate first. This would save you the most money in the long run, but you’ll have to stick to your plan.
Find Other Income Sources
Working overtime or starting a side gig are two ways that you may be able to boost the income side of the equation.
Call Your Creditors
In some cases, creditors may be willing to reduce your interest rate or even your balance in exchange for a guarantee of repayment.
Consider Debt Relief Programs
Debt consolidation rolls all of your debt into one. This can potentially lower the interest rates you’re paying and make it easier to repay your debt.
Credit counselors can teach you how to get ahold of your debt and not get in it again. This service is often offered by the government or through non-profits.
Stay Motivated and Focused
Whichever path you take to get out of debt, it’s important to understand that if you can’t stay motivated and focused, your debt relief plan will fail.
Understand that the path to debt freedom may take some time, and have the determination and diligence to achieve your goal, even if you have momentary setbacks.
