Getting out of debt can feel like an uphill battle, especially when you’re dealing with a low income. However, with careful planning, determination, and smart financial strategies, it is possible to break free from the burden of debt and regain control of your finances.
In this article, you will find practical 8 steps to help you get your financial house in order.
Whether you’re facing credit card debt, student loans, or other financial obligations, these actionable steps will guide you in making progress and achieving your goal of becoming debt-free, even on a low income.
Let’s get started!
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Please follow the steps in the order they are given if you are new to budgeting.
However, if you already have a budget, start with debt-pay-off goals.
This article will also include links to relevant helpful articles that will give you more in-depth guides as well as resources to complete each step.
Bookmark this page and keep coming back here for the next steps.
How to Get out of Debt on a Low Income
How to get your financial house in order?
This 8-step plan will help you to get your financial house in order and to pay off the debt faster.
Step 1: Assess Your Debt Situation
- Make a list of all your debts, including current credit card balances, interest rates, and minimum monthly payments.
- Determine your total debt amount and create a clear picture of your financial obligations. You can also use the Debt Thermometer Printable here to see your total debt on one page.
Step 2: Create a Budget
- Track your income and expenses to understand your cash flow.
- Identify areas where you can cut back on expenses and redirect that money toward debt repayment.
- Consider using budgeting apps or tools like Mint or You Need a Budget (YNAB) to simplify the process.
- You can also use our FREE 50-20-30 budget worksheet with a guide to get started.
Step 3: Set SMART Debt Payoff Goals
- Specific: Define the exact amount of debt you want to pay off and the timeframe.
- Measurable: Break down your goal into smaller milestones to track progress.
- Achievable: Ensure your goal is realistic and attainable based on your income and expenses.
- Relevant: Align your debt payoff goal with your overall financial objectives
- Time-Bound: Set a specific deadline for achieving each milestone.
Step 4: Choose a Debt Repayment Strategy
- Snowball Method: Start by paying off the smallest debt first while making minimum payments on other debts. Once the smallest debt is paid off, roll that payment into the next smallest debt, and so on.
- Avalanche Method: Prioritize debts with the highest interest rates. Make minimum payments on all debts while allocating extra funds toward the debt with the highest interest rate. Once it’s paid off, move to the next highest interest rate debt.
- Evaluate which strategy aligns best with your financial situation and motivates you to stay on track.
Step 5: Increase Your Income and Decrease Expenses
- Look for opportunities to increase your income through side gigs, freelance work, or asking for a raise.
- Trim unnecessary expenses, such as eating out, subscription services, or entertainment.
- Direct the extra money toward your debt payments using the FREE Debt Thermometer Printable.
Step 6: Negotiate Lower Interest Rates
- Contact your creditors to negotiate lower interest rates on your debts.
- Explain your intention to pay off the debt and inquire about any possible interest rate reductions or hardship programs.
Step 7: Utilize Debt Repayment Tools and Resources
- Debt Repayment Calculator: Use online calculators to estimate the time and money you can save by making extra debt payments.
- Debt Management Apps: Consider using apps like Debt Payoff Planner, Debt Free, or Unbury.me to track your progress and stay motivated.
- Debt Support Groups: Join online communities or support groups where individuals share their debt payoff journeys, tips, and encouragement.
Step 8: Stay Committed and Celebrate Milestones
- Stay motivated by celebrating each debt milestone you achieve.
- Recognize your progress and reward yourself with a small treat or an inexpensive activity to maintain motivation.
Remember, paying off debt takes time and persistence. By following this step-by-step plan and utilizing the recommended resources, you can make progress toward becoming debt-free faster.
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Final Thoughts on Getting out of Debt on Low Income
By following these practical steps, you ensure that your finances are in order and you’re working towards clearing off the debt faster.
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