You might struggle with several kinds of debt. Between student loans, credit cards, car loans, medical debt, and personal loans, it’s easy to end up owing thousands.
Although you might not think debt is a big deal at first, it can balloon out of control. And if you don’t earn a lot of money, keeping up with your payments can be challenging. However, getting rid of debt is essential to securing your financial future.
How to get out of debt on a low income
When you’re overwhelmed and don’t have a high enough salary to make a dent in what you owe, you might feel like you’ll never get out of debt. But you can dig yourself out by coming up with a plan and using these four tips.
1. Prioritize your debt repayment
Before you pay down your debt, it’s important to have a strategy so your limited funds are used wisely. The first thing to think about is which debt, if any, is secured.
Secured debt requires you to put up something valuable, such as your car, as collateral. Car title loans are a common form of secured debt. If you fall behind on your payments, the lender can seize the item you used as collateral. Secured debt can be risky, so it makes sense to pay off this form of debt before tackling others.
Next, make a list of all of your other debt, including balances and interest rates. To make your money work for you, use the debt avalanche method. With this approach, you pay the minimum on all accounts and put any extra toward the debt with the highest interest rate. After you pay off the debt with the highest interest rate, you pay off the next highest and so on. The debt avalanche helps you save more money over time.
2. Make drastic life changes
When you’re living on a small income, there’s only so much you can trim from your budget. If you’ve already stopped eating out, going to coffee shops, or going to the movies (and still don’t have enough money), you might need to make more drastic changes.
Consider the following ideas to increase your cash flow so you can pay down your debt:
- Get a roommate: If rent eats up a significant portion of your paycheck, a roommate can help reduce your housing and utility costs. It’s not an ideal situation, but think of it as a short-term sacrifice to reach your financial goals.
- Sell your car: Although selling your car might not be an option for everyone, it’s something to consider if you live in an area with public transportation. When you sell your vehicle, you not only get the money from the sale, but you also free up the cash you would have spent on insurance, gas, and repairs. According to AAA, owning and using a small sedan costs an average of $7,429 per year. Getting rid of your vehicle can help you put thousands toward your debt repayment.
- Move to a cheaper place: If you’re short on cash, consider downsizing to a smaller home in a less expensive area. Living in a small studio might be hard, but you could save a significant amount of money.
3. Consolidate your debt
High interest rates can cause your debt to grow over time. For example, pretend you charged $5,000 to a credit card with a 15.00% interest rate and had a minimum monthly payment of $125. If you made only the minimum payments, you’d pay $1,875 in interest charges alone.
Depending on the type of debt you have and the interest rate your lender charges, you could end up paying thousands more than you originally borrowed. As the debt grows, it can become more and more difficult to pay down the balance.
Thankfully, there are two ways to save money during repayment:
- Consolidate your debt: If you have credit card or medical debt, one way to manage it is to consolidate your debt with a personal loan. You work with a lender to take out a loan for the amount of your current debt and use it pay off your credit cards and other accounts. With debt consolidation, you could qualify for a lower interest rate, helping you save money. Use our credit card consolidation calculator to find out how much you could save.
- Refinance your student loans: If you have education debt, you could save money and pay off your debt faster by refinancing your student loans. With refinancing, you work with a lender to take out a loan for the amount of some or all of your current loans. The loan will have a different repayment period, minimum monthly payment, and interest rate. If you have good credit, you could qualify for a lower rate and reduce how much you pay in interest. To find out how much you could save, use our student loan refinancing calculator.
4. Earn extra money
One of the best ways to get rid of debt is to boost your income. You might not be able to get a bonus or raise from your full-time job, but there are other ways to bring in extra money each month. Here are a few:
- Start a side hustle: If flexibility is important to you, launching a side hustle that allows you to work when you want can be helpful. There are apps you can use to earn money by walking dogs, delivering groceries, picking up junk, or driving strangers to their destinations.
- Sell stuff: You might not realize it, but the junk and clutter you aren’t using could be worth hundreds. Sell electronics, toys, collectibles, books, and clothes on sites such as Poshmark and eBay to earn extra money for debt repayment.
- Get a part-time job: If you need a more reliable source of income, consider taking on a part-time job on nights and weekends. Working just a few hours a week at a coffee shop or store can help you earn extra cash.
Improving your finances
Figuring out how to get out of debt on a low income can be tough, but it’s possible if you work hard and hustle.
If you need more help repaying your student loans, check out our complete guide to paying them off faster.
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