How to get out of debt on a low income

If you’re facing large debts on a small income, you may be wondering how to pay off what you owe. Many people with limited incomes fall into debt not because they’re irresponsible, but because their income simply can’t keep up with the rising cost of living, unexpected expenses, or temporary instability. Most folks never have a chance to build an emergency savings since they’re living paycheck to paycheck. When every dollar is stretched thin, even small emergencies like a car repair or ER visit can lead to borrowing just to get by—creating a cycle that’s hard to break. In this article we’ll look at basic strategies that can help you gain control of your finances and get out of debt, even on a limited income.

Key takeaways

• To get out of debt on a limited income, you’ll need to make it your top priority, pay even closer attention and exercise more discipline when it comes to your finances.
• Get support from your friends, family, and a financial coach. Emotional support and a personalized strategy can go a long way.
• Financial aid, boosting your income or cutting your expenses are practical approaches to getting out of debt.
• You also may find it helpful to freeze your credit card, negotiate with your creditors, or consolidate your debt.

Get the mindset

On a limited income, you are probably very aware of your income and expenses. To get out of debt, you’ll need to make the debt your top priority, even if it means having hard discussions and going without some necessities. It will take even more attention and even more discipline. Get your mindset focused on the temporary side of getting out of debt for the benefit of the future. Make your mantra: “This is short term, my future self will thank me.”

Get community support

If you’re comfortable talking with your family or friends about your debt and your commitment to getting out of it, ask them to provide encouragement. Ask them not to invite you to social events that cost money for a little while, to check in on you, and to send reminders to stay on track. For those who live with you, maybe you need their support as you cut your streaming services or delay a home repair.

Find a financial coach who can dig into your debts, incomes and expenses. They will ask questions about your finances, look at your credit report, and suggest a personalized strategy to help you get out of debt. They can offer a roadmap as well as encouragement in dealing with your finances. Oportun members get free access to financial coaches at UnidosUS. You may also be able to find a financial coach through your employer or a local nonprofit agency.

Create a budget

Start by making a list of all your debts. Include the total amount you owe, interest rate, minimum payment, and due date for each one. With this information written down, you’re ready to create a budget and plan your payoff strategy.

To create a realistic budget, keep track of all the money coming in and going out for several months. List all your sources of income and the amount you get from each one. Then make a category for each type of expense, such as rent, utilities, groceries, insurance, debts, transportation, child care, and entertainment. It’s easier to handle your finances when you know exactly where your money goes.

Choose a repayment method

Two methods of debt repayment are: the snowball method targeting the smallest debt first, and the avalanche method targeting the most expensive debt first. Choose the one that feels most comfortable to you. Continue to make the minimum payments on all your debts each month, then put as much more as you can afford toward your payment strategy. Whichever method you choose, the most important thing is to keep going until all your debts are paid off.

Find financial aid, boost your income or cut your expenses

Nonprofit and government programs exist to help people financially get through hardship. Food banks can feed you, utility support can bring down the cost of gas and electric, housing assistance can keep you in your home, prescription support can keep you on track, and more. Find local support near you through Oportun’s partnership with SpringFour, who vets and provides resources that can help make ends meet during this challenging time.

Generating additional income, even temporarily, can also help you get out of debt faster. You could try driving for a ridesharing service, walking dogs, running errands, or other freelance jobs. If you have a spare room, consider renting it out to bring in some extra money. Or sell some of your things on online marketplaces.

Cutting your spending is another effective approach. For example, you may be able to find a less expensive cell phone plan. If you pay for a gym membership or ongoing subscriptions, you could try canceling these items until you’re in the clear.

Break up with your credit cards

When you’re working hard to pay off what you owe, you’ll want to avoid taking on any new debt. Credit cards, although convenient to use, often come with high interest rates and low minimum payments. If you’re not paying it off in full each month, it may be time to break up with your credit cards. You can do this by canceling the accounts entirely, or temporarily freezing them. You will still have to pay what you already owe, but you won’t be adding new debt.

A debit card is a good payment alternative. It offers much of the same convenience as a credit card, but the money you spend is immediately deducted from your bank account. This means you won’t be charged interest, but be cautious not to overdraw your connected bank account so you don’t spend more money than you have.

Using cash can even further limit what you spend. Some people have an emotional attachment to cash and don’t part with it as easily as digital funds, plus you must physically be somewhere that accepts cash to spend it.

Consolidate your debt

If handling your debt payments feels overwhelming, you may want to consider debt consolidation. This allows you to combine multiple debts into a single account, simplifying your payments and (hopefully) reducing your stress. Look for a loan with affordable payments and an interest rate lower than each of your current debts to help lower your monthly out-of-pocket costs

Talk to your creditors

Some lenders will work with you to develop a payment plan. Ask about hardship programs, lower interest rates, waived fees, or refinancing. You may be able to negotiate a temporary pause in your debt payments (though this likely won’t pause the accrual of interest).

Don’t give up

Even on a limited income, it’s possible to get out of debt. Get the mindset, get support, choose a strategy, keep track of your progress, and celebrate every debt you pay off. Give yourself credit for taking control of your finances and developing smart money habits that will last you a lifetime.

With planning and commitment, you can soon be on your way to living debt-free.

Oportun: Affordable lending options designed with you in mind

Now that you have some ideas on how to get out of debt on a limited budget, you can set your goals and adjust your strategy as needed to meet them. Remember, think about the long-term benefit.

Wherever you are on your journey, Oportun is here to help. Visit our homepage to learn about:

• Personal loans
• Secured personal loans
• Set & Save™

Sources

Bankrate. How to get out of debt on a low income

Experian. How to get out of debt on a low income

NerdWallet. Pay off debt: Strategies and tips

Consumer Reports. How to save $500 on your cell phone plan

SmartAsset. What is a financial coach, and how can they help?

This article is intended for educational and informative purposes only. It should not be relied upon as personal advice regarding legal or financial matters, and you should consult legal or financial professionals of your choosing. Get FREE financial coaching through our partnership with UnidosUS.