Getting rid of your debt is possible – even you are earning a low income. With enough determination, you might be able to become debt free in less than a year – even if you don’t have a six-figure salary. It can be tough, but achieving financial freedom is the best reward you can give yourself.
It is important to make your top priority getting out of debt as soon as possible. That way, your financial problem will not get any worse. You can do this even if you are not making large sums of money.
Why You Should Pay Down Your Debts ASAP
Paying off your loans might be the last thing on your mind if you are living on a tight budget and earning just enough to make ends meet. While your life might be comfortable enough with your current financial situation, you might not appreciate the true nature of your finances.
The real issue is not how low your income is or how much you owe. It’s more about the opportunity lost for every minute you stay inside the debt trap. The faster you pay debts off the better off you will be.
It is easy to pay off your loans even if you have no money to start with. You don’t even need to sell any of your assets to begin the process. Here are some steps to help you to get rid your debt as fast as you can – even on a low income.
1. Analyze Your Financial Status
If your income is within twice the federal poverty line, then your household is categorised as a “low-income.” You might have a master’s degree or even a doctorate and still be a low-income earner. You might not see yourself as on a low income, but that’s perhaps why you are spending more than you can afford to.
Having an inadequate income along with debt is bad for your financial health. You can’t solve your financial problems if you don’t change your way of living. It is important to accept reality and find ways to tackle the problem.
Aside from your income, you should know how much you owe to lenders and creditors. Knowing the total amount of your financial burden is the first step toward getting rid of it. You should compare how much you are spending with how much you are earning.
2. Create a Budget
After finding out how much you are spending and how much is left, you now know the amount you can use for paying off your debt. You should make sure that you have some money left after all your monthly expenses, however.
If the outgoing amount is higher than what’s coming in, then you have a cash flow problem. You might be relying too much on your credit cards, and that’s a major reason you can’t decrease or get rid of your financial burdens.
The number you arrive at should be the baseline of your new budget. To start the process of paying off the amount you owe, you should consider including the minimum payments in your budget. You should also set aside extra money for less important stuff such as a couple of drinks, a movie or dinner.
It is important that you have some wriggle room in your budget so that you don’t feel too restricted. You can make more money available by finding ways to earn more in order for you to be financially independent in the near future.
3. Look for Ways to Save Money
Although you allowed for some expenses in your budget, you can look for ways to trim that amount. That way, you can achieve financial freedom even sooner. So, go over your budget again and find the areas where you are spending too much money.
Some ways you can reduce your overhead costs include:
- Purchasing food in bulk, and shopping when there is a sale. You can also use coupons when buying food, toiletries, clothes, and other items, and make use of cashback sites.
- Considering selling your car and simply biking or walking to work if it’s feasible. It’s not beyond the realms to save up to $9,000 annually between payments, insurance and gas if you give up your car.
- Cooking food at home instead of dining out. Home-cooked meals are cheaper and more nutritious than fast food. One easy way to cut expenses at work is to bring coffee brewed at home instead of buying it.
- Considering cutting your subscriptions to the gym, to unnecessary magazines, and to the cable company. Downgrading your internet and mobile phone subscriptions to slower speeds and fewer add-on services is a great way to save money.
- Learning how to live a frugal life. You could consider buying used items such as furniture, clothes, and appliances. Some places where you can buy used stuff include the classifieds and thrift stores.
4. Start an Emergency Fund
You might be thinking, “Why should I save money when I need to pay off my financial obligations.”
The answer is that things might not go according to plan, and you could get yourself deeper into the debt trap when you least expect it.
You can prepare for unforeseen events with the help of an emergency fund. The fund then prevents the use of your credit cards. You can start with $1,000—or whatever amount you can— and just increase the amount whenever you have extra money in the future.
5. Earn More Money
Reducing your overhead costs isn’t always enough. If you want to get rid your financial burdens faster, you probably need to bring in more money.
If overtime or a raise looks unlikely, look for other ways to make more money during your downtime. Try examining your skill set, and find a part-time job or freelance gig that fits those skills and brings in extra money.
6. Talk to your Credit Providers
If all else fails, you can consider talking to your lenders. Most lenders are strict when it comes to monthly payments, especially if you start missing installments. One way to avoid that is to talk to them first and ask for better terms.
Some banks can provide you with lower interest rates, better terms, or an extension to the previous no credit loans that will help you in paying them off. Keep in mind, however, that talking with your creditors will not erase your financial burdens. You may just get better terms to make it easier to repay your obligations.
7. Stay motivated
It is important to stay motivated throughout the entire process of reducing and eventually eliminating your debt. Don’t let setbacks stop you from reaching your goal. If at some point, you start feeling down because of the change in your lifestyle, just remember the reasons you made the change.
Whether it is in nine months or two years, you can achieve financial independence, even with a low income. You just need to focus primarily on your goal, not the in-between setbacks, and you could get rid of all your debts in no time.