Having a low income and debt are often correlated together. Although, they do not need to be. Hence the reason why learning how to pay off debt fast with low income is so important. I sought out the best ways to pay off debt fast with a low income and this is what I found.
How to Pay Off Debt Fast With Low Income:
- Determine Your Financial Starting Point
- Stop Acquiring New Debt
- Explore Debt Consolidation / Debt Relief Opportunities
- Financial Literacy
- Budget and Cut Costs
Debt is a common acceptance, especially among Americans. Except debt can have numerous long-term negative outcomes if not handled fast and accordingly. It has a hold on your happiness level and your financial independence.
For example, if you are stuck in debt, you do not have the ability to leave that job you hate and spend time looking for a new one. This is because you need to keep making the minimum payments toward your debt.
Debt Repayment Calculator
The first step before diving into this article is learning how long it would take to pay off your debt given your current repayment process.
One tool I used to help me get out of debt is this debt repayment calculator. This helped me realize how long it would take me to pay off my debt at my current rate. And believe me, I did not like the number.
Because of this, I did my research and learned creative ways to pay off debt faster to reduce that repayment time.
Continue reading to learn more about how the above options can help you achieve a debt free life.
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5 Ways: How to Pay Off Debt Fast With Low Income
1. Determine Your Financial Starting Point
Before I started my debt paying path, I would neglect ever looking at my debt. I was afraid to see what it amounted to. This was even before I knew the effect that compound interest had on my debt.
Because of my unwillingness to accept the facts, I kept accumulating debt. Avoid this at all costs (literally).
Take a temperature check on how much money you are bringing in and how much debt you owe. Refer to the debt repayment calculator to figure out how long it will take to completely pay off your debt at your current pay rate. This is meant to scare you. Much like I did, you will realize how long it would take to be completely debt free at your current rate.
Let that inspire you rather than put you down. Be realistic with your financial starting point and your financial situation without convincing yourself otherwise. Utilize the steps below as well as more research.
Just because your financial starting point is not currently strong, does not mean it will be that way forever. Determine how much you owe and create a realistic plan to pay it off.
2. Stop Acquiring New Debt
Once you realize the work needed to pay off your debt, do not add to that work! Avoid using your credit card at all costs. Stop buying unnecessary products off Amazon that bloggers advertise. Avoid buying $3.50 coffee!
All of these things add to your consumer debt if you use a credit card. If you use a debit card on these unnecessary purchases, then you are wasting money that could be used to pay off your debt faster.
Debt is your enemy that is keeping you in your financial situation. Interest is the angry older brother that accompanies the debt and makes it even worse. The less debt = less interest you are paying.
Cutting unnecessary spending was one of the hardest parts for me. I used to buy Starbucks everyday thinking “oh its only $3.50”. I used to buy expensive clothes and spend a ton of money at bars. Once I stopped doing that two things happened:
- More money to pay off my debt
- Debt slowly started to get paid down and the interest on my debt decreased as well
Learn how to stop living paycheck to paycheck in 2021 today!
3. Explore Debt Consolidation / Debt Relief Opportunities
Debt consolidation is rolling multiple debts into one payment. There are multiple benefits to debt consolidation.
One benefit of debt consolidation is lower interest rates. In my opinion, this is the most important one, especially if you have over $25,000 in debt. Credit cards specifically can yield high interest rates which adds a significant amount to how much you need to pay each month. Research the best debt consolidation loans that fits your term and loan amount and start saving.
Another benefit of debt consolidation is that you’ll simply end up paying it down faster. Eloan writes how “the consolidation process takes multiple factors into consideration when establishing the length of the loan, such as income, credit score, and how much you owe in order to come up with a sensible payback plan. For this very reason, debt consolidation loans have a shorter payback period.”
4. Financial Literacy
The fact that you searched this topic and stumbled upon this article shows that you have a desire to get out of debt and achieve financial independence.
I strongly encourage you to research further after this article to better understand your options. Reading books is the best way to do this. Increasing your “money knowledge” only has benefits and is typically not taught in school.
One book that changed my life was Rich Dad Poor Dad. I highly encourage you to read this if you want to learn how to stay out of debt and the impact it can have. The book also dives deep into how to increase your asset column/passive income, although this is not the focus of this article. I cannot recommend this book enough.
Learning how to pay off debt fast with low income all stems from financial literacy as this is the building block to which you grow from. Staying out of further debt = paying off settled debt faster.
Check out the 5 Best Books on Making Money and Financial Education
5. Budget and Cut Costs
I have covered budgeting in previous articles, the reason it keeps coming up again is because of how important it is. No progress will be made until you write out all of your monthly expenses in an organized planner and determine how much you spend a month on average. Once this is figured out, you can find areas to cut spending.
Budgeting goes hand and hand with determining your financial starting point. Being realistic with your spending is important and making notes on what is a necessary spend and what isn’t.
Once a budget is in place, you can then start cutting costs. A budget will help you realize how much extra cash you may have if you did not buy all those iced americanos everyday. It will help you see the monthly spend on unnecessary purchases. It was surely startling for myself the first time I created my budget and saw how much I was spending on clothes and accessories. I quickly eliminated those from my budget.
Budgeting helps your spending habits. Simple as that. Once you cut certain areas of your budget, you start to always think “ok do I really need this cardigan?” and your spending habits shift from want to need.
I hope you found these five tips on How to Pay Off Debt Fast With Low Income helpful. If you have any questions please reach out! I am not an expert and this is not professional advice, but I have lived through paying off A TON of debt in a reasonable time frame. Thank you for reading!