You may think getting out of debt on a low income seems impossible. However, you would be surprised to learn that debt relief is achievable with the right personal finance strategy and dedication.
It’s obviously easier to get rid of debt on a comfortable income. Even with a low income, though, it may take you longer to control your debts and lower your overall debt level, but it is possible. There are several effective approaches to debt-free life, even when extra money is tight.
Let’s take a look at a debt-reduction plan even for a low-income person.
Any realistic debt repayment plan starts with a solid budget and a good debt management plan. Consider debt as a situation where you need to know where every dollar goes, how much you earn, and how much you spend every month. When you have a low income, managing debt is even more important as you have less leeway.
Track all your expenses, no matter how small, for at least a month. Include necessities like housing, utilities, food, and transportation, as well as irregular expenses like car maintenance, or medical costs.
Look for areas where you can cut back. Even small reductions in spending habits can add up over time. Consider using cash for discretionary spending to make your budget more tangible and avoid overspending. Research shows that when people have cash in hand, they are more realistic about how much they spend.
You earn a low income. You need to make efficient debt management plans and create a budget so that you know where your money is going and that you have enough financial space to repay your debts.
Ask for additional hours at your current job or look for part-time work that fits around your schedule. If you have family or are caring for someone, finding more work could be a challenge. The gig economy offers flexible opportunities like food delivery, rideshare driving, or online freelancing that can provide extra income without requiring specific qualifications, and it can be done on your own timetable.
Even temporary or seasonal work can provide valuable extra funds to put toward debt repayment. For example, summer work or extra work during the holidays could go towards your debt.
You need to prioritize your debts and choose which ones you will tackle first. Being on low income means you probably can’t repay all your debts, but you need to start somewhere.
Two popular approaches are the avalanche method (paying off highest-interest debts first) and the debt snowball method (paying off smallest debts first). The avalanche method saves more money in interest over time, but the snowball method provides quick wins toward debt that can keep you motivated.
On a low income, the snowball method often works better psychologically, as seeing debts completely eliminated can provide the mental boost you need to help you pay the debt you owe.
Many creditors are willing to work with borrowers who show a genuine and honest desire to pay off debt.
Contact your creditors to explain your situation and ask about hardship programs, lower interest rates, manageable card interest rates, or modified monthly payment plans. Some may be willing to reduce your interest rate or waive certain fees: these will make your monthly payments more manageable.
Document all conversations and get any agreements in writing. Remember that creditors would rather receive minimum payments with a lower interest rate than no payments at all, so you have some leverage.
There are various programs to help low-income individuals manage their expenses and debt.
Look for government assistance programs for which you might qualify, such as SNAP benefits, energy assistance, or housing subsidies. These could free up money which can be used to repay debts. Also, non-profit credit repair counseling agencies can provide free or low-cost advice on debt management and could help negotiate with creditors on your behalf.
Building an emergency fund while you are in loan debt may be counterintuitive, but hear us out. A small emergency fund can be God-sent when you can’t make ends meet, for example, if you need to pay for house repairs or if your car breaks down.
Start with a goal of saving $500-$1,000 to handle unexpected expenses without adding to your debt. An emergency fund prevents minor emergencies from derailing your debt repayment progress. You won’t be piling up more debt to your existing one. Make automatic small deposits to a separate savings account, even if it's just $5 or $10 per paycheck.
Break the cycle of bad credit and avoid taking on new obligations.
This implies difficult lifestyle choices. You may need to shop less, eat out less, or lower your everyday expenses. Look for free or low-cost alternatives for entertainment and social activities. Learn to distinguish between true emergencies and wants that can wait, no matter how much shopping therapy feels appealing. Remove saved payment information from online shopping sites to make impulse purchases more difficult.
Look for ways to get expenses reduced through community resources and programs. Food banks, community health clinics, and local non-profit organizations often provide assistance that can help stretch your budget.
Libraries offer free entertainment and educational resources. Some communities have tool-lending libraries or swap meets that can help you avoid purchasing items you will only use occasionally.
As we said, managing your money is hard, but every little bit helps.
It will take longer to get out of debt on a low income. This can be discouraging, as it can feel like you are only making a small dent in a pile of debt.
But stay motivated. Celebrate small victories, like paying off a single credit card debt or reaching a savings milestone. Track your progress visually with a debt pay off chart or spreadsheet. Connect with others in a similar financial situation through online communities or local support groups who can provide encouragement and share strategies. After all, you are hardly alone: more than 100 million Americans can’t pay off their credit cards and carry a card balance over several months.
Bottom line: your task right now is to lower your overall credit card debt or other debts and repay them. However, you should keep long-term strategies in mind to improve your financial situation. This can include pursuing additional education or training to qualify for higher-paying jobs. You could learn new skills through free online resources, or explore entrepreneurial opportunities. The goal is to move from low income to higher income. That’s when you will have more room to pay down debt more comfortably.
Getting out of debt on a low income can be tiring and frustrating. You need patience and persistence. Progress might be slower than you'd like. And yet, every payment moves you closer to your goal of financial balance.
Focus on the progress you are making rather than the distance still to go. You are not an exception: like many Americans, you have debts that need to be repaid on a low income. Many others have successfully become debt-free on limited incomes and you only need determination and the right strategy to make it work for yourself!