10 Steps to Get Out of Debt on a Low Income

You want to get out of debt, but you don’t make a lot of money to pay it off. If you’re wondering how can you possibly get rid of debt once and for all? Here’s some helpful advice for a debt-free life on a low income.

Did you know that people with low income pay off their debts faster than those with a bigger income? It is hard enough to pay off debt when you have money let alone on a low income. But the awesome thing is that it is very possible. Even better news you don’t have to sell your house, car, or soul to do it.
Today, as in right now I’m going to go over strategies you can use to pull this off without selling your soul to the devil.

1. The first step to any debt solution is to write down all of your financial situations

The only way to pay off your debt is if you know what you owe and how much. So I want you to get on the computer or grab a pen and paper, now I want you to write down all of your debts. One of the most important aspects of any debt-reduction strategy is to know what you owe and what you want to pay off first.

As you are working on writing it all down make sure to also include the total amount, interest, term, and monthly payments, also the available credit limit of each debt. This will help us understand and get a visual of where we are with each debt. You cannot win a war without all the facts and numbers.

On a separate sheet of paper I want you to write down all of your sources of income as well as your monthly expenses such as food, rent, car, insurance, utilities, cable, phone, etc.

2. Next, you will make a budget

Nobody likes making a budget. But if you want to be able to have any control over your debt then this is a must.
Once you know all your expenses and debts, you can go through the process of allocating your monthly income as necessary.  We will be using the zero-sub budgeting system.

How this will work is zero-sum budgeting will give you the tools to improve your finances by teaching you how to live off last month’s actual income instead of income projections.

The idea behind zero-sum budgeting is that at the end of the month, you don’t have a single cent leftover because every dollar has been allocated to bills, debts, and savings. This may sound a little unsettling, but it will help you regain control much faster.

When you create your budget, the first things to take care of your savings and debts. Then you can use what’s leftover for everything else. If you have to cut expenses somewhere, it comes from things like entertainment and transportation rather than debt-reduction or investments.

3. Look at your biggest expenses and see where you can cut back

Once you know where you’re at regarding your debts, expenses, and budget, you must stop spending more. You can’t get out of debt if your debt keeps growing. Because you can’t take that money from debt payments or savings, it’ll have to come from elsewhere.
Go over your budget and look over your spending to see where you’re spending too much money. This could be on transportation or eating out for example. Then you will need to make a plan for spending less. Here are some ideas:

  • Buy food in bulk check out Sam’s Club
  • Clip coupons or use store mobile apps for everything that you buy, it will save you money (check out my post on how to cut groceries bill in half)
  • Sell your car (if you have one) and walk or bike to work if this is an option for you.
  • Skip eating out. Home cooking is cheaper
  • Cut out on cable which usually costs $50-100 and just do Netflix or Hulu. Also, put your cell phone and Internet on a package for a cheaper price.
  • Buy used: this includes checking thrift stores and classifieds when you need to buy anything, including clothes, furniture, vehicles, and even appliances
  • Shop the Dollar Store for great deals.

4. The only way to pay off your debt is to make more than the minimum payment

If you keep paying just the minimum it will twice as long to pay off your debt, plus more expensive due to interest rates. I went over budgets and spending and how to stop adding to your debts, but now it’s time to get to the serious details of debt reduction. The first and among the most important things to realize is this: Making just the minimum payment will result in life-long debt.
If you want to get out of debt, you must make higher than minimum payments.

5. The best way to go about paying off debt is by doing one balance at a time

I know you are thinking she is crazy for thinking I can make above minimum payment on each debt. Don’t worry I know it may not be possible for you to make above-minimum payments on every debt every month. The best part of it is—you don’t have to. But what you do have to do is choose one debt to pay down first. While you’re doing that I want you to continue making minimum payments elsewhere if possible.
For instance, say you have three debts with different balances.

For example, if you have 3 debts you want to choose one and pay it to double what the minimum payment is, this will help you get it done faster. The other debts can still remain at minimum payments. As soon as you take care of that first balance, you can do a happy dance and start to tackle the next debt. From there, pay the minimum each month on the remaining two, and pay triple the minimum payment on the next debt you want to tackle (so you’re still paying the same amount) toward the singled-out debt.

The Harvard Business Review investigated different debt reduction approaches and found that this method can help you pay off debts up to 15 percent faster than if you just paid minimum payments on all three.

Choose a balance to pay off first: The Avalanche Method

This can be a tricky party for most, deciding which debt to pay off first. The first option is known as the avalanche, and it entails paying the debt with the highest interest rate first.

Bruce McClary at the National Foundation for Credit Counseling uses a ladder analogy to describe this method. Start with the highest interest account, and when that’s gone, “move down a rung of the ladder and apply all your extra payments to the account with the next highest rate.”

This is a great way to go about being debt-free because you will save money in the long run. You will not have that big interest rate any longer to keep adding up.

Choose  a balance to pay off first: The Snowball Method

Okay, so this is a very popular way to go about it. I am sure many have heard Dave Ramsey talk about it. It is called the snowball method. It’s called this because you start with the smallest debt and work your way to the biggest one, like a snowball gathering speed as it rolls down a hill.

Between $700, a $300, and a $1,500 debt, you’d start with the $300 and finish with the $1,500. This is more a psychological approach to debt-reduction because the idea is to gain inspiration and momentum from your small initial successes.

While it’s a great method, I fear you may end up paying a lot more interest with this method. But if you have trouble staying motivated, the extra interest may be well worth it to get out of debt.

6. Talk to your creditor often

I know it sounds crazy, but talk to your creditor they will listen. They are people too and they understand. Do this soon as you find yourself struggling with your debt.
According to Bruce McClary, “don’t wait until an account is about to be closed because you’ve had several months of late or missed payments. Tell the creditor you’d like to pay down your balance faster and want to know what services are available to help you manage your debt.”

The creditor has a lot of power when it comes to your debt, they are willing to work with you if they see you truly want to pay it off. They may be able to reduce or eliminate your interest payments, at least temporarily. This is especially true if you’ve fallen on financial hardship recently, because of things like a job loss or medical emergency.

7. Cut back on spending by switching to cash only

Did you know people tend to spend 20% more on their purchases because they use a credit card instead of cash? When you use the cash you are limited to only the amount you have on you. This can help those who do not how to control their spendings. While paying off the debt cut up your cards so you are not tempted to spend what you do not have.

8. Getting a job side can help pay off debt faster

The best way to get the debt paid off faster is to put more money towards the debt. One way of doing this is to increase your income. This isn’t always the easiest option, but there are ways you can increase your income. Here are a few ideas to give you some thought:

  • Get a part-time job
  • Work more overtime
  • Sell some of your things
  • Rent out part of your house
  • Have a garage sale

Just remember working a little bit extra over the next few months just means you will eventually have peace of mind after it is all paid. So every time you make an extra income it all must go towards your debt. This could include unexpected income like gifts, tax returns, bonuses, lottery winnings, or any other money you get.

9. Sometimes a balance transfer can be helpful

Now, this option is not for everyone. A balance transfer can be a risky way to deal with debt, but there are some situations where it makes sound financial sense. The only way you should consider doing a balance transfer is if it is interest-free for a fixed period. If it is not, then stay away from that. This could save you tons of interest.
Another condition is that the balance transfer fee is small, or ideally nonexistent.

But be cautious of this method, this will work best if you have the means to pay down a substantial amount of the debt during the zero-interest period. Otherwise, you are only drawing yourself into more debt.

10. Some debt solutions should be avoided

Being in debt is terribly frightening and depressing. You feel like all you are working on is to pay off the debt that never seems to be getting smaller. Sometimes it feels like it is keeping you a prisoner and the key was thrown away.

One of the debt solutions to watch out for are credit counseling because while it may seem like a perfect idea, having creditors reduce your debt can severely damage your credit score for many years. It takes anywhere from 7-10 years to fix your credit score. That is a long time and you could have paid your debt yourself by then.

Another option that is similar is called debt consolidation, which takes all of your debts and rolls them into a single debt, seems great but can have terrible consequences in the end. This will only divide what you pay between all your debts, so that means you will be paying it for a long time.


Being in debt is always overwhelming, and especially when you’re trying to get out of it on a small income. But there is hope, it is possible to get out of debt.

The key to getting out of debt on a low income is making a strict budget, tackling one debt at a time, and not giving up, no matter how hard it seems. I don’t know about you but I rather live sparsely for a year or two than have a lifetime of debt.

More at The Money Skim


How to Get Out of Debt on A Low Income
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