Getting out of debt on a low income can be difficult, but there are some tips to follow. Giving up on your morning Starbucks isn’t going to impact your finances greatly, but spending less can help.
However, there are other more effective ways to manage your debt. Whether you can pay off your debt depends on your situation, but you can combine several strategies to make the most of your income and bounce back from crippling debt with a bright credit score ahead.
So let’s get into 7 ways you can pay off debt fast on a low income!
1. No new debts!
If you borrow money from one source to pay for another, you shuffle the debt instead of paying it off. Sometimes taking advantage of special offers or consolidating your debt into a lower-interest loan can be beneficial.
Regardless, it is advisable to stop taking on new debts when trying to reduce debt. Don’t open new credit cards or apply for loans without a good reason, and freeze all unnecessary spending. If you have expenses that are more than your monthly income, it’s important to avoid new debt.
This can be difficult, but staying on top of your bills is important so you don’t get overwhelmed. Charging necessary expenses on your credit card or borrowing money from a personal loan you can’t afford will only make it harder to repay debt in the future.
2. Organize your debts
It can be not easy to create a debt-repayment plan that fits your specific situation without knowing how much you owe. If you’re overwhelmed with debt, it’s tempting to ignore your bills. To ensure that you pay off your debts as quickly as possible, you must have an accurate estimate of what you owe.
Make a list of all outstanding bills and debts. Add up what you owe. Next to the principal balance, write the interest rate, late fees, and other penalties. Without a good understanding of your financial situation, figuring out how to pay off debt with a low income is difficult.
3. The debt snowball method
The debt snowball method helps you pay down your debt quickly by building momentum. Following this debt repayment strategy, you’ll pay off the smallest debts first, then work your way up to bigger, more expensive debts.
The debt snowball method makes it easier to reduce the number of debts you have since you work your way down the debt list faster. With less debt to juggle, paying off debt can be less difficult.
This debt repayment method works better for low income because it motivates you to keep pushing forward and paying back smaller parts of your debt in a way you can afford. In case your income improves, you may switch to another method called the debt avalanche method.
4. The debt avalanche method
Once you have paid off smaller debts, there are several ways to proceed with larger debts. One way to pay off your debts is to use the debt avalanche method.
This approach involves making the minimum payments on each bill, then using the rest of your money to pay off the debts with the highest interest rate. Interest charges on your debt add up monthly, so trying to stop the highest interest bill from coming due will save you money.
With this method, you’re keeping more of your monthly earnings, which will help you make larger debt payments. Shifting your focus to debts with larger balances can help you save a lot of money in interest.
5. Get a side hustle
It is important to both save money and earn more to have more control over your finances. If you have the time, think of ways you could make more money. Some side hustle ideas include driving for a ride-sharing service or working online as a freelancer.
If you work a full-time job, you might also want to consider looking for a new job with a higher salary or asking for a raise from your current one. There are many ways to earn extra money, and you could use this extra money to reduce your debt.
6. Negotiate with your debtors
If the interest rates on your debt make it difficult to meet your obligations, you might be able to adjust them. If you can, try to negotiate a lower interest rate with your creditors.
Keep up with payments on your debt, and you’ll be more likely to receive a positive response from the creditor. You could argue that your account is in good standing when you request. If you can lower your interest rates, you will save money on your debt over time and may be able to pay it off more quickly.
7. Explore debt relief options
If interest continues to accumulate, you may want first to explore options for debt consolidation or relief. Debt consolidation can help reduce your debt burden by combining your outstanding balances with a new lender. This can make your payments more manageable and help you reach your financial goals.
Some companies can help you get debt relief from your creditors. They will try to negotiate with them on your behalf and may be able to get them to reduce the amount of money you owe.
By consolidating your credit card and personal loan balances, you can get a more predictable monthly payment, save on interest, and improve your score. This will also give you a more definitive debt-payoff timeline. But if you choose debt relief, you can pay less than you owe and get out of debt faster.
Getting out of debt doesn’t have to be far-fetched, even if your income is low. To reduce the number of balances in your account, follow these tips. Ultimately, taking action will help you improve your credit score and move you one step closer to achieving financial freedom.