You want to get out of debt, but you don’t make a lot of money—how can you possibly get rid of debt once and for all? Here’s some helpful advice.
Not all of us make six figures which means paying off debt can be tough. But it’s not impossible. I’ll show you how to get out of debt, even on a low income.
But sometimes, disaster strikes and people are forced to confront their circumstances head-on. A series of unfortunate events — a sudden job loss, an unexpected (and expensive) home repair, or a serious illness — can knock one’s finances so off track they can barely keep up with their monthly payments. And it’s in these moments of disaster when we finally realize how precarious our financial situations are.
START A MINIMUM NEEDS BUDGET
The first step in paying off debt on low income is to set a minimum needs budget. If you’ve not lived on a budget before, here’s a great guide on how to make a budget.
A minimum needs budget works just as it sounds. You determine the minimum you need for day-to-day living, or what you absolutely need to survive. Look first at your large expenses, which are:
- Food Look for opportunities to save money. Maybe that means getting a roommate. It can also mean selling your car and getting a cheaper one or taking Lyft or Uber if it’s cheaper. It may also mean cutting down on food costs if you like to eat out.
The purpose of this is to free up money to throw at your debt. Next, you want to look at things you don’t need. Those can be a variety of things from needless subscriptions to cable TV.
You can spend time trying to cut or negotiate those bills, or you can use Trim. Trim is a free to use app that negotiates bills to lower rates and cancels old subscriptions allowing you to bank the savings.
Again, the purpose of this is to free up money to throw at your debt.
The simplest way to set up your minimum needs budget is to track your spending. You want to keep track of every cent you spend so you can see where your money is going
We recommend Tiller if you’re looking for a way to track your spending. It lets you view all your financial transactions in one location, through automation. Tiller is a Google Sheets based service that automatically pulls all your banking and other financial transactions that helps you categorize your spending and find opportunities to save.
Tiller is free to use for the first month, then $5 per month thereafter.
GET OUT OF DEBT THROUGH RELIEF
If you already have debt then probably one of your biggest monthly expenses is dealing with that debt. That sucks and you’ve gotta do something about debt management ASAP.
The best way is to just get the people you owe money to forgive some of what you owe. Sounds crazy but it works surprisingly often – to the tune of billions of forgiven dollars a year.
Imagine if you owed $10,000 and told your credit card company that you can only pay back $3,000 or you’ll have to declare bankruptcy and in turn pay none of it. They would rather get something over nothing and will either flat out agree or come with a counter offer like $6,000.
Either way, it’s a free debt reduction and all you need to do is call your credit card company. Or, if you’re unsure of your negotiation skills just bring in someone like National Debt Relief. Their cost is roughly 25% of the amount of debt they get forgiven so it’s a pretty low-risk deal since it costs you nothing if they can’t help.
MAKE MONEY THAN THE MINIMUM PAYMENT
I’ve talked about budgets and spending and how to stop adding to your debts, but now it’s time to get to the nitty gritty details of debt reduction. The first and among the most important things to realize is this: Making just the minimum payment will result in life-long debt.
The average American has a credit card balance of about $9,600 with a 15 percent interest rate. Making the minimum payment each month would leave you paying off that debt for nearly 12 years! If you want to get out of debt, you must make higher-than- minimum payments.
You have to find out other ways to make more money. This will enable get out of debt faster. You can check the gig economy jobs that is paying and start with one from there you are on you way of becoming debt free,
STEP AWAY FROM THE ____.
We’re all tempted by something. For many, it might be the local mall or our favorite online store. For others, it might be driving by a favorite restaurant and wishing we could pop inside for a favorite meal. And for those with a penchant for spending, having a credit card in their wallet is too much temptation to bear.
Whatever your biggest temptation is, it’s best to avoid it altogether when you’re paying down debt. When you’re constantly tempted to spend, it can be difficult to avoid new debts, let alone pay off old ones.
So, avoid temptation wherever you can, even if that means taking a different way home, avoiding the Internet, or keeping the fridge stocked so you aren’t tempted to splurge. And if you must, stash those credit cards away in a sock drawer for the time being. You can always bring them back out once you’re debt-free.
STAY IN TOUCH WITH YOUR CREDITOR THROUGHOUT THE PROCESS
Believe it or not, creditors are people too, and they do have a sense of sympathy. If you find yourself in a situation where you’re in over your head or struggling, get on the phone and talk to your creditors.
According to Bruce McClary, “don’t wait until an account is about to be closed because you’ve had several months of late or missed payments. Tell the creditor you’d like to pay down your balance faster and want to know what services are available to help you manage your debt.”
The creditor may be able to reduce or eliminate your interest payments, at least temporarily. This is especially true if you’ve fallen on financial hardship recently, because of things like a job loss or medical emergency.