How Can Someone with a Low Income Start Paying Down Debt?

Consumers with modest income need to do more than a typical consumer that is a little more well established financially. In order to successfully get out of debt you will need to take a more fine-tuned approach than other consumers.

There are a few ways someone with a modest income or financial struggles can more meaningfully contribute towards paying down their debt. As always, the first step is to better understand your financial situation. First, write down your debt balances, monthly payments due and create a general budget with your monthly income and expenses. Once you’ve tallied up your budget, write down what you can afford to put towards the debt at the end of each month. If you have $200 leftover at the end of each month, you should designate all of those funds towards paying down debt. For consumers with a modest income I would recommend you start the “debt snowball method” after you create a budget. The debt snowball method is the most impactful psychologically speaking since it helps eliminate balances in order from smallest to largest.

What Practical Steps Can Be Taken to Reduce Debt without Borrowing?

In terms of practical steps to reduce debt without borrowing more money, you really only have two viable options: You can increase your income, cutback on expenses or renegotiate new payback terms with creditors. Unfortunately, there is no magic pill, it really is that straightforward. If the first two options aren’t viable than you can consider reaching out to your creditors and seeing if they offer any alternative options or hardship-based programs.

How Can Discipline Aid in Your Debt Payoff Journey?

“Discipline” can definitely be in short supply and for many consumers discipline is the hardest part of budgeting. This is why I recommend the “debt snowball” payoff method as opposed to other methods; it helps reinforce positive habits be decluttering your finances when you eliminate minimum payments one by one. This will help give yourself reminders and helps you keep motivated and steadfast in the face of the slow uphill battle of getting out of debt.

Is There a Best Way to Handle Your Debt?

The best way to get a handle on your debt is to understand your debt and create a plan of action to eliminate it. If you don’t understand the problem it will be nearly impossible to solve it. Create an analysis of your situation by writing down each individual debt you have and its associated credit limit, minimum payment, interest rate, balance, etc. Lists of debts are important in that they help consumers visualize a path forward and help them quantify their current situation. It’s a lot harder to pay down debt when you are strictly doing mental math and budgeting in your “head”.

How Should You Set Goals?

Honesty is always important. We need to be honest and realistic with ourselves in understanding our own capabilities and not create too lofty of a goal. It’s always better to try and set a small goal so that we can surpass it! Always try to be honest with yourself, if you got into debt by making bad financial decisions, it’s up to you to fix them and hold yourself accountable! If you’re spending more than you make you need to make a change since your current path isn’t sustainable. The sooner you get back on the right track and start making better financial decisions the better.

Does Psychology Play a Part?

Psychology is very important with regards to money and with regards to the debt pay down process. If you don’t channel your mental energy towards becoming debt free your commitment to the process isn’t likely to last. You didn’t get into debt overnight, so you’re not going to get out of debt overnight. Budgeting and monitoring spending are habits you need to build, if you don’t reinforce these habits psychologically, they are bound to fade. Moreover, it’s important to always celebrate small victories and practice gratitude for all progress you make, no matter how small they might seem.

Can Side Hustles Help?

Picking up a side hustle (even if it’s just temporarily) could provide you with a quick needed boost to help shift the balance in your favor. If you can temporarily boost your income in the short term it could help you pay down enough debt that you could also lower your monthly expenses. This would be a double win for you! Whether you pick up a freelance writing job or design job or chose to temporarily drive or deliver food, the outcome is the same. The increase in workload doesn’t have to be permanent if you don’t want it to be. However, make sure you utilize the extra income as best as you can in order to help prepare yourself for the future.

Can You Take a DIY Approach?

Negotiating with your creditors can sometimes be feasible, some creditors offer hardship-based programs that can temporarily help you avoid interest payments. The best and most successful strategy here is simply to be honest about your situation. Call your creditors and candidly tell them about your situation and ask if there is any assistance they can offer. Not everyone is going to work with you but some might lower interest rates depending on your circumstances. Side note: You are typically better opting for a lower interest rate than a reduction in payments, if possible, since a lower interest rate will at least help you save money off the principal. However, you can negotiate on both time and on savings and if you’re undergoing financial hardships having the flexibility of extra payments might be extremely important to you.

What If You’re Low on Patience?

Patience and commitment are key with debt-based issues. Again, you didn’t get into debt overnight so you shouldn’t expect to get out of debt overnight. These things take time and require gradual change. If you optimize your budget and cut expenses where possible you can look towards contributing any excess cash you have towards debt repayment—in turn—further reducing your monthly expenses. You can also stay the course by holding yourself accountable and asking your family to hold you accountable.

Should You Consider Professional Help?

Professional help and outside counseling can definitely be useful for some debtors. This really depends on what type of person you are, if you are a DIY person you might want to stay the course and try to resolve the situation of your own accord or you can reach out to a debt relief company for help. However, if finances never were your strong suit, then you could definitely consider outside help. Financial advisors and debt counselors can be helpful in that they deal with this type of stuff every day and might have more insight into your “overlooked blind spots”.