By Bitsy McCann
You might be thinking, "I don't make a lot of money, and I have a lot of debt. How can I possibly do this?" We are here to help! Follow our seven steps to help learn how to pay off debt fast on a low income.
- Make a list of all your debt. I know this task seems daunting but creating a list of your outstanding accounts is an excellent place to start. Review your accounts and write down the minimum payments and interest rates for each. Often, you'll want to tackle the highest interest rate accounts first. However, if you know that paying off the smallest balance initially will motivate you more, do that.
- Consider a balance transfer. Here at Members 1st, you can consolidate most or all of your debt onto a single card which will help you as you tackle how to pay off debt with limited income. We offer an introductory period where you don't have to pay any interest for a certain period of time. When you consolidate with a benefit such as this, all of your debt will be interest free, and you'll be paying down your balance vs. paying down mostly interest. This ensures that your debt doesn't grow as a result of added interest.
- Try the debt snowball or avalanche methods. Using the snowball method, pay off your smallest debts first. Pay as much as possible to eliminate your smallest debt and pay the minimum on all other debts. The avalanche method helps save money on future interest payments. It requires paying the minimum amount on all accounts with outstanding balances. Then, any leftover money you’ve allocated for debt payments helps pay off your debt with the highest interest rate.
- Create a budget. Sometimes, people are unaware of how much they spend on things in their life. Create a monthly budget for yourself or as a couple, and if you need help, feel free to contact your personal concierge.
- Stop acquiring new debts. Now that you have your budget, it's easy to see where your money goes. Look through all your purchases over the past month. Did you spend a lot on dining out, entertainment or something else that's not necessary? Consider making some cuts in your general spending habits and spending less in your home. We have excellent money-saving articles that can help, whether you want to budget successfully, spend carefully, or save easily.
- Pay as much as you can. You've consolidated your debt, created a budget and cut back on your spending. Now it’s time to focus on paying down your debt. Take as much money as possible and make a payment to begin reducing the size. This takes concentrated effort and dedication. Once you start making larger payments, you'll feel much lighter every month. This will help you on your journey of how to get out of debt on a low income.
- If it's possible, increase your income. Turn a hobby into a hustle by opening an Etsy store. If you have a spare bedroom, put it on Airbnb. If you're not making your industry's standard pay rate, ask for a raise or seek better-paying opportunities. Get a temporary part-time job that you think would be fun. If you have any other income-producing ideas, try them and see what works best for you!
- Stick with it. Paying off debt takes time and can be challenging. If you’re still struggling with how to become debt free on a low income, we’re here to help you avoid common mistakes and continue on your debt-free journey. If you have a month where it's hard to pay a lot extra, don't beat yourself up. Get right back to it the following month. If you need help, our associates are happy to assist you. Start working towards paying off your debt by setting up a goal savings account.