How to Pay Down Debt on a Low Income

You want to pay down debt, but it feels impossible on your current income. It’s definitely a challenge. But, it is not impossible. It takes motivation, perseverance, patience, and a mindset shift.

In this post, I will touch a little bit on mindset and then outline a few tips that might help you pay down debt on a low income.

The mindset to pay down debt

If you want to pay down your debt on a low income, a mindset shift is a must. There are basically two things that need to occur to successfully pay down debt. An increase in income and a decrease in expenses. Unless you are blessed with a windfall of money, these are the two areas that require your attention.

This might sound pretty obvious to pay down debt. However, it’s not so easy in real life. In real life, we get caught in a cycle of living paycheck to paycheck and we have accrued debt and expenses that seem will never decrease.

This is where a mindset shift will help. The situation you are in does not need to be this way forever. You can pay down your debt. While doing so, you may find you’ve created better financial habits and new sources of income along the way.

It’s easy to focus on the difficulties. But, what if those difficulties are viewed as opportunities to be better?

Can you get excited about the idea of paying down your debt? When you are eager, you will find ways to make it happen. List all of the good reasons to pay down debt and stay focused on the premise that you can do this.

You’ve decided to pay down debt, now what?

Now, let’s say that you’ve shifted your mindset and you are ready to pay down your debt. What are the next steps?

Gather your current data

If you don’t already have this information then this is a good place to start. You’ll need to know exactly how much money you bring home each month as well as what your standard expenses are.

You will also need a list of all your current debts. I would put these in order of smallest debt to largest debt.

Create your plan to pay down debt

Now, this post is about how to get out of debt on a low income so I am guessing that after you subtract your expenses from your income there is not much left over to start making a big dent in your debt. This is where you need to be creative.

Here are a few suggestions

1. Trimming expenses

Start by trimming some of the fat from your largest expenses. There are some expenses that cannot be adjusted. However, it is possible to get creative with your variable expenses.

Food was a big one for us. We did some evaluations in this area and set some specific budgets that lifted up to about $40 per week. We put that toward our credit card debt and although it still took time before everything was paid off, adding that extra $160 per month from this category alone was going in the right direction.

Review all of your expenses and set some realistic and reasonable goals. Some common categories that can be trimmed are below. They do not need to be eliminated, just reduced.

Food
Entertainment
Gas
Online shopping
Self-care (massages, nails, hair)
Clothing that is not necessary
Memberships

2. Combine credit cards

If you have multiple credit cards research balance transfer options to reduce the number of accounts. Be cautious when doing this since some of these transfers come with added fees that might not make it worth pursuing.

There are some advisors that do not agree with this. A suggestion I completely understand the concerns. However, if you can swing it with no additional fees then it is a much easier mountain to tackle and mentally just feels better.

3. Tackle one debt at a time

Progress will be faster when you tackle one debt at a time. Get the smallest one out of the way and then use those funds to start tackling the next one. For those who follow Dave Ramsey, this is his snowball effect. Not only will you see your debt melting away you will gain momentum to continue your process and ultimately succeed.

You can also tackle the card with the highest interest rate first. I personally like getting rid of the lower balance first because I like the satisfaction of completing something. However, whichever method you choose is fine. The key is to pick one and stick with it.

4. Find ways to get more cash

The more income you have, the easier it will be to get out of debt. Use your debt payoff goal as motivation to work toward a promotion, find another job or start a side hustle.

What skills do you have that might benefit others? Here are a few ideas. Get creative and I am sure you will find something.

Handyman work
Gardening
Tutor
Music teacher
Errand runner
Driver
Graphic designer
Proofreader
Dog walker/pet sitter

5. Monthly budget

Create a monthly budget, stick with it and monitor it. Track your spending with budget categories and really pay attention to where your money is going. Doing regular budget checkups is when you discover creative ways to reduce spending which adds money toward your mission to get out of debt.

Summary

If you have a low income then the process to pay down debt will be more challenging. However, it is possible. Discuss options personally with your credit card companies and you might be surprised by what you will find. Keep your mindset positive and your vision in front of you. Refer to your goals often for motivation to find new income opportunities and to continue your journey to pay down debt.