One of the most difficult challenges that could stop you from achieving your long-term financial goals is debt. You could even find it impossible to retire if you have a huge outstanding debt that needs to be paid off. You will keep working tirelessly without reaching a point of satisfaction with your finances. However, by learning how to pay off debt fast with low income, you can secure your future financially and regain your peace of mind.
I still remember how my cousin got entangled in debt some years ago. She used her credit cards excessively and borrowed a loan to start a small business, meanwhile, she still had a student loan to pay off at the time. Apparently, this was indeed a difficult situation for her. But over time, she was deliberate enough to improve her financial situation by taking drastic steps toward her spending habits, savings goals, and cash flow.
My main aim in this post is to enlighten you on the step-by-step procedure for paying down debt even if you aren’t getting a ton of money every month from your employer. Within the shortest time possible, you could start enjoying a debt-free life.
How Can I Pay Off My Debt Fast With Low Income?
When it comes to paying off debt with a low income, the most important thing to keep in mind is your spending. You have to drastically cut down on your expenses so you can free up cash to speed up your monthly minimum payments.
Which Method Is Best To Pay Off Debt The Fastest?
To learn how to pay off debt fast with low income, it’s advisable to focus on one balance at a time. Direct most of your income toward paying down a balance, after which you can focus on the next and the next. This way, there’s less pressure on you to become debt-free.
Benefits Of Paying Off Debt Fast
Some people think paying off debt isn’t a big deal. As much as they have their personal theories to support this notion, it doesn’t change the fact that paying down your debt in time has several benefits.
Paying Off Debt Fast Increases Financial Security
Debt will always remain a serious threat to your finances. This is because it keeps you from saving or investing most of your money. Think about it, the money you spend on debt payments every month can be contributed to your retirement fund, emergency fund, or your kids’ college education.
Debt often prevents you from making the most of your income. But as soon as you become debt-free, you are on the path to financial security.
Paying Off Debt Fast Allows You To Spend Freely
Another important reason you want to learn how to pay off debt fast with low income is that you should be able to spend your income on things you love. Do you plan on going on vacation with your family? Do you want to get your spouse an expensive gift on your next wedding anniversary? These are personal goals that are achievable as long as you don’t have debts to pay off every month.
Paying Off Debt Fast Takes Away Stress
You would agree that having debts to pay off can be mentally strenuous. This is because you are constantly calculating how to meet up with your monthly minimum payments while affording your bills. This brain-racking activity takes away your peace of mind and leaves you stressed out all the time.
Don’t forget that your mental health is very important. It’s not worth any amount of money in the world. Hence, you have to be relentless when it comes to achieving a debt-free life.
Paying Off Debt Fast Helps Your Credit Score
This is one of the most obvious benefits of becoming debt-free on time. That’s why I’d advise you to learn how to pay off debt fast with low income.
When you pile up too much debt, especially credit card debt, you are indirectly damaging your credit score. You have to ensure that your credit balances are not higher than your credit limit. But the best thing is to avoid credit card debt completely. This can improve your credit score.
Paying Off Debt Fast Improves Your Future Earnings
Here’s something interesting about debt. The moment you take a loan or purchase things using your line of credit, you are simply taking money from your future income. Basically, the $1,500 or $5,000 you owe today will be deducted from what you would earn in the future. In most cases, you are definitely paying back with interest.
If you want to improve your future standard of living, it’s time to say NO to debt. It’s time to devise effective ways to pay off debt with low income.
How To Pay Off Debt Fast With Low Income: 12 Proven Steps
If financial security is a top priority for you, then you must find every reasonable means to avoid owing debt. Here is a 12-step plan that makes debt payments feasible and faster even if you are trying to survive on a low income.
1. Avoid Any More Debt
When you want to learn how to get out of debt on a low income, the first thing you need to do is to stop taking on new debt. You may think borrowing money from one source to pay another is a way out of debt. However, this would worsen your situation. It’s like trying to get out of the pit, meanwhile, you keep digging deep.
The only way this is beneficial is when you open a new balance transfer credit card which offers a 0% APR introductory period. Consolidating your debt is also another wise option if you are considering borrowing money to pay off debt faster. Otherwise, it’s best you avoid any more debt.
2. Figure Out How Much You Owe
The next step to learning how to pay off debt on a low income is to determine how much you owe. You may be tempted to overlook the bills that keep coming in when you are overwhelmed by your debt. However, remember that if you are actually going to pay off everything you owe, you need to know the exact figure.
To do this, create a list of every outstanding debt such as credit card, loan payment, medical bill, utilities, and any other bill you owe. Add them up and figure out the total amount of money that needs to be paid. This gives you a clear picture of your goal and helps you determine how long it would take to achieve it.
3. Reduce Your Spending
This is one of the top tips for paying off debt on a small income. The fact that you aren’t earning enough money in the first place is enough reason why you have to be frugal. This means you have to find ways to cut down on your living costs to save extra money.
This is not usually an easy feat. It would be difficult adjusting to a frugal lifestyle when you are already used to the opposite side of life. However, you have to weigh the consequences of your actions.
Would you want to maintain your “comfortable” lifestyle while owing a ton of money or would you like to be debt free, so you can have your peace of mind? Of course, you want to be debt free. Start by reducing your spending.
4. Build A Budget
A budget is a clear and concise financial plan that allows you to see where income is coming from and how much you are spending every month. Building a monthly budget is one of the helpful tips for paying down debt on a low income.
From your fixed bills such as rent and car payments to your variable expenses such as feeding and utilities, you have to account for your monthly expenditure in a budget. The way this helps to pay your debt faster is that it gives you a reasonable spending plan, helping you to free up cash to make extra payments to your debts each month.
5. Stop Using Credit Cards
Avoiding credit cards is a major step to figuring out how to pay off debt fast with low income. Earlier, I mentioned something about avoiding more debt. This is why you have to ditch your credit cards. All of them.
When you stop accepting credit, it makes it easier to manage your already existing debt. Rather than adding to the balance, you can now focus on reducing it each month. This is also a major factor in building your credit score.
Buying things on credit while you have an outstanding balance would reflect poorly on your credit score.
6. Choose A Reliable Payoff Method
Finding the ideal payoff method is one of the most important steps on how to pay off debt fast on a low income. You need a payoff strategy that is suitable for your financial situation; a method you can stay committed to until you finish paying off your debt.
For example, if you are easily motivated by small wins, then you should use the debt snowball method. It entails paying off your smallest debt while covering the minimum payments on other debts. As soon as you finish clearing the least balance, you focus on the next smallest debt.
The debt avalanche method is also another well-known strategy for paying off debt. It entails paying off the debt with the highest interest rate first. Tackling the highest interest before others will help you save money eventually and it could speed up the debt payment process.
If you’d like to learn more about this method, check out this post where I explained how the debt avalanche works.
7. Start With The Smallest Debts
Let’s assume you chose the debt snowball method, then you have to concentrate more on the debt with the smallest balance before moving on to the next one. This doesn’t mean you will abandon other debts. You have to keep covering the minimums on all your balances. However, you should make extra payments toward the smallest debt to finish paying up faster.
This remains one of the best tips to pay off debt on a low income because it allows you to achieve small milestones which will then serve as self-motivation to keep you going until you’ve cleared all your debt.
8. Focus On The Larger Debts
As soon as you begin to pay off your smaller debts, you can go ahead to tackle the larger balances. This is where the debt avalanche method comes in. You are to make the minimum payments on each bill and use the extra money left to pay off debt with the highest interest rate.
This matters because the high-interest rates add charges to your debt every month. By paying down these larger balances, you are indirectly putting money back into your pockets (since you’re saving on high-interest rates).
This method is one of the commonly used strategies for people who have learned how to pay off debt fast with low income.
9. Earn Extra Money
If you are learning how to become debt free on a low income, then maybe you should try to increase your income a bit by making extra money. Finding ways to boost your monthly income means you’ll get more money to increase your monthly payments, thereby paying off your debts faster. There are diverse ways to earn extra money.
If you don’t mind working multiple jobs, don’t hesitate to find another job or side hustle to supplement your main paycheck. You could become a freelance, affiliate marketer, or simply run a small dropshipping business. The main goal is to increase your income significantly.
By the way, if you want to learn more about growing your finances, here are 10 legit ways to make extra money every month.
10. Tackle One Balance At A Time
This is an important rule when it comes to learning how to pay down debt with low income. Since you won’t be able to make above-minimum payments on all your debts every month, it would be wise to focus on one at a time. Choose one debt to pay down first (while you cover other minimum payments).
For example, let’s say you have five debts and the minimum on each is $100. Your total payment for the month would be $500. But if you want to tackle a particular debt, then you can pay $200 to that balance every month instead of 100. This makes your total monthly payments $600.
When you finish paying down a balance, continue the same strategy with another balance.
11. Debt Consolidation
Debt consolidation is one of the solutions people seek when they don’t know how to pay off debt fast with low income. Consolidating your debt means taking a single personal loan to pay off all your outstanding debts. This way, you have to combine your debts into a single loan that can be paid off gradually.
The best part about debt consolidation is that the interest rate is usually lower than most of your outstanding balances. This makes the loan more convenient to pay over time.
12. Boost Your Credit Score
Improving your credit score doesn’t seem like what would help you pay your debt fast on a small income. But it actually does help.
When your credit score is low, you may be required to pay higher interest rates on your debts. This is because you are considered someone with a bad history when it comes to paying off debts such as credit cards and personal loans. Hence, make sure you check your credit reports to spot any mistakes.
More importantly, make your monthly payments regularly and avoid taking in new loans.
Final Thoughts On Paying Off Debt Fast With Low Income
Although you may have a low income, paying off your debt is still possible. Instead of overthinking and getting worried about how you can become debt-free, follow the strategies that have been discussed in this post. These are the easiest ways to learn how to pay off debt with low income.
Besides, debt consolidation is an option you might want to consider if you have several debts with high-interest rates. Begin your application to see if you’re an eligible candidate for it. Your credit score will also play a major role here.
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