Getting Out of Debt on a Low Income

Getting Out of Debt on a Low Income

Lifestyle

Being in debt is frustrating, tiring, and sometimes even humiliating. You’re living paycheck to paycheck, trying to keep on top of your monthly payments, and it feels like you’re the only one struggling. You go to work and see that your colleagues can splurge on expensive vacations, gadgets, and trendy clothes.

You know you make about the same amount of money, which leaves you wondering how come they can afford it and you can’t. Are you just terrible with money? Well, according to statistics, chances are they’re also in debt. It has become the norm, and though you may often feel like you’re alone, your situation is not at all unique. We’ve become accustomed to spending more than we make. We can buy something now, enjoy it and worry about the consequences later.

To get out of debt, you have to do the exact opposite. Spend less than what you make, so you slowly chip away at your debt until you regain your freedom. We’re not saying that it will be easy. But with patience, perseverance, and a few strategies we will discuss below, you’ll make it through.

Living Paycheck To Paycheck

When you’re living paycheck to paycheck, you barely have enough money to cover all your expenses. You have no money left to splurge. In fact, a good month for you probably means you somehow managed to pay your utilities, insurance and credit cards.

On bad months, you have to choose between getting late payment fees and relying on yet another payday loan. You feel like you’re one wrong move from losing control over your situation, but you don’t know what to do.

You’re also aware that this sort of juggling leaves you vulnerable because you don’t have any savings for emergencies, and if you have a medical problem or your car needs repairs, your only option is to pay for it by taking on more debt.

Budgeting

Budgeting can feel a lot like dieting. You know it’s good for you, but then you start, and you feel so restricted that after a short time, you end up eating or spending even more than before. So it helps to think of budgeting not as something that will restrict you but as the tool you use to set yourself free from debt. It’s actually your debt that’s restricting you. And you won’t be able to take back control over your finances if you’re lost track of them.

If you haven’t already, you can start by writing down all your fixed expenses, which means your bills and monthly debt payments. The next step is to keep a diary of all your other expenses for a month. Write down everything, including groceries, clothes and entertainment. Even if you buy a cup of coffee, write it down. You’ll quickly notice that having to write down everything you spend will also help you spend less.

After the month has passed, calculate how much you’ve spent on what. This is when you’ll see how all those little expenses you never thought about add up and make a big difference in your budget. See what you can give up to reduce your spending. Break them down into things you need and things you just want but can give up temporarily. And keep this is in mind: yes, you are making sacrifices, but they’re temporary, and once you’ve succeeded in paying off your debt, you’ll have more income available so you can indulge a little bit.

Reduce Monthly Payments

By reducing your monthly payments, you can use more of your revenue towards paying off your debt. To do this, you can analyze your fixed expenses and see if you can negotiate a better deal with your providers. For example, with insurance, you can increase your deductibles, which would lower your premiums. You can also do some online research and find other providers with better deals.

For example, you can save some money on your cell phone bills by renegotiating with your providers, switching plans or switching providers. If you call the provider and tell them that you want to switch to a competitor, they may give you a better offer.

You can also try renegotiating interest rates and minimum payments on your credit cards.

Refinancing

If you have credit card debt, you’re probably well aware that much of the debt stems from high-interest rates and late fees. Let’s say you have a $1,000 balance on one of your credit cards. You pay a minimum of $40 because that’s all you can afford. If something happens and you fail to pay, you’ll get charged a late fee of $35. If your interest rate also switches to the 25% default rate on future charges, it will be even more challenging to pay your debts.

Instead, you can refinance, which would mean taking another loan with a lower interest rate and using that money to pay off the credit card debt so you can focus on just one monthly payment that’s much easier to manage. You can also find loans for bad credit, in case your credit score is less than ideal.

Stop Trying to Keep up With Everyone Else

As we mentioned in the introduction, being in debt can often make us feel ashamed. We don’t want our friends or coworkers to know. We’re afraid they’ll judge us. But, as we also mentioned in the introduction, there’s a high chance that they’re also in debt and hiding it. One of the most common reasons people get into debt is that they’re trying to keep up with everyone else. They’ll spend money on things they don’t need and often don’t even want. All they really want is to show their friends and coworkers that they can afford them.

Breaking free from even just this one bad financial habit can do wonders for your budget and confidence. You’ll have a much easier time, not overspending when you start to care less about what people think of you when you don’t buy branded clothes, go on expensive vacations, or when you bring your own lunch to work.

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