How Can You Get Out of Debt with a Low Income?

Getting out of debt when you have a low income can be difficult. You might feel like you’re not making any progress, no matter how hard you try.

Although it can take time to become debt-free, you can take steps to achieve your goal. The following strategies can help.

Write Down Your Debts

Make a list of your debts, including the following information for each:

• Current balance

• Monthly payment

• Interest rate

• Remaining loan repayment term

The details of your debt load help you evaluate your current financial situation, prioritize which debts to pay off first, and develop your repayment plan.

Create a Spending Plan

A spending plan helps you manage your money and pay down debt:

1. Gather details about your income and expenses for the past few months to evaluate your spending habits. 

2. Categorize each expense to understand where your money is going and where you can cut back. 

3. Research and compare spending plans to determine which works best for you.

4. Set goals for saving, spending, and repaying debt monthly based on your income.

Avoid New Debt

Do not apply for credit cards and loans unless necessary. If you use credit cards, consider putting them in a drawer and removing them from your digital wallet to avoid increasing your balance.

Develop a Debt Repayment Strategy

Your spending plan and credit profile impact your debt repayment strategy. Consider the following options to pay off your debt:

1. Debt Snowball Method

• Make the minimum payment on each bill and allocate additional funds toward the debt with the highest balance.

• When the balance is paid off, add the total payment to the next-lowest balance.

• Continue the process until all debts are paid off.

2. Debt Avalanche Method

• Make the minimum payment on each bill while putting additional funds toward your debt with the highest interest rate.

• When the balance is paid off, add the total payment to the balance with the next-highest interest rate.

• Continue the process until all debts are paid off.

3. Balance Transfer Card

A credit card with an introductory 0% annual percentage rate (APR) promotion can help you pay down debt. Transferring high-rate balances and paying off as much of the debt as possible before the promotional period ends can help you save on interest costs. A 3% - 5% fee is typically added to the card balance.

4. Debt Consolidation Loan

A debt consolidation loan might reduce the interest rate on your debt while providing a repayment plan. You can move credit card balances and other high-interest debt to the loan and save on interest costs. The upfront fee is typically taken from the loan funds.

Reach Out to a Credit Counselor

Most nonprofit credit counseling agencies offer free consultations to help you create a spending plan and manage your debt:

• A debt management plan for your credit card balances could reduce your interest rates and monthly payments.

• You make one monthly payment to the counseling agency, which distributes the funds to your creditors.

• A debt management plan typically lasts 3-5 years and includes a monthly fee.

• You might qualify for discounted or waived fees if you’re experiencing financial hardship.

Look Into Other Financial Assistance Programs

You might qualify for financial assistance to free up money for paying off debt if your income is low. For instance, check the eligibility requirements for food stamps, Medicare, unemployment benefits, and other government assistance programs to see if you qualify. Call 211 to learn about assistance programs offered by community organizations, like low-cost healthcare, dental services, housing, and job training.

*This information is for educational purposes only.

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