How to Get Out of Debt With a Low Income

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When it comes to debt, it can often feel as if you’re alone in your effort to become debt-free. However, the truth is that many Americans are saddled with debt.

Credit card debt alone has been on the rise since 2013. That year, Americans paid $74.6 billion in interest and fees on their credit cards, according to a MagnifyMoney analysis of FDIC data. By 2018, that number had risen to $103.7 billion. If you’re looking for help in becoming debt-free, then consider the following tips.

5 tips to get out of debt on a low income

There are multiple ways that you can get out of debt. However, the five most common include the following:

1. Consider a debt management plan

A debt management plan is designed to help you set up a payment schedule that will allow you to repay your debts. Typically, you enter an agreement with a credit counseling agency. Each month, you deposit funds with your agency, and those funds are used to pay your creditors. The benefit of entering a debt management plan is that your counseling agency can work with your creditors to eliminate finance charges and other fees. Your agency can also help reduce the number of collection calls you receive. Normally, it takes no more than five years to pay off your debts using a debt management plan. Plus, after you’re done paying, you may have improved your credit rating.

There are several nonprofit resources you can consult if you need more information about these kinds of plans:

Keep in mind that not all organizations claiming to have your best interest in mind can be trusted. Both the NFCC and the Council on Accreditation are accredited organizations that adhere to ethical practices. So to avoid scammers, make sure the organization you’re working with is accredited.

2. Set and stick to a budget

One of the quickest ways to getting debt-free is by creating a budget that you can stick to from one month to the next. Creating a budget can be done in seven simple steps:

  1. Set a financial goal you want to achieve within a year.
  2. Find out your net income for a month.
  3. Record what you spend for the month.
  4. Document all the payments you will need to make each month.
  5. Document all the spending you do that you don’t need to make.
  6. Adjust your spending by cutting out expenses you don’t need.
  7. Review your spending regularly to make sure you’re sticking to your goals.

Even the best laid-out plans can go wrong, though. It’s not uncommon for people to break their budgets even when they have a solid plan, which is why it’s important to keep up to date with your spending. Fortunately, people can now stay on top of their finances better than ever by using mobile apps.

One of the best apps for getting out of debt is the You Need A Budget app. Unlike many other finance apps, You Need a Budget app was designed to help people pay down their debts. It works by forcing users to live within their income and doesn’t let them create budgets around money they still don’t have in their accounts.

Another helpful app that you can use is Mint. Mint is a more general finance tool that users can use from their PCs or through a mobile app. One of the benefits is that Mint regularly finds offers that can help users save money.

3. Reduce your monthly spending

Although we’ve mentioned the importance of cutting spending, doing so can actually be very difficult for many people. However, with the right planning, it can be done. There are several easy ways that you can control spending.

One of the quickest ways is by creating a shopping list. It can be easy to go over your spending limit when you’re not watching what you’re doing. A shopping list is an easy way for you to calculate your costs ahead of time and control your spending when you go out.

Speaking of shopping lists, an easy way to reduce spending is by reducing the amount of dining out. You can save money by creating a grocery list that sticks to your budget, eating at home and cutting back on the number of times you eat at a restaurant. Simple steps like this can add up over a month, especially if you tend to eat out often.

It’s also good to make cost comparisons. Whether you’re talking about utilities or casual expenses, you’ll want to shop smarter. Finding the best deals can take a little time, but it can have a yearlong payoff if you find the right deals. It’s especially important to compare costs when you’re talking about signing long-term contracts.

4. Increase your income

One of the most basic ways of getting out of debt is by increasing your income, and one of the most traditional ways of increasing income is by getting a raise. There are a few basic tips that anyone should keep in mind when preparing to ask for a raise. First, employees should always compare their salary against what others are making in the same role.

Salary.com is one website where individuals can estimate their salary, but PayScale also maintains salary data. Users can compare data from both websites to determine how much others in their field are making. You can also look up salary averages on the Bureau of Labor Statistics website.

Once you know how much others in your field are making, you’ll be better positioned to negotiate for a raise. It’s best if you tie any request for a raise with your performance. This means that you will need to have a discussion with your supervisor about how you have performed and negotiate your request for a raise from there. Demonstrate to your supervisor the value you bring and tie your request to that value.

Even if you’re not able to get a raise, you may be able to earn income through a side job. It’s estimated that a person can make anywhere from $1,000 to more than $10,000 through side jobs annually. Finding a side job in the 21st century is also easier than ever thanks to mobile apps. Now, people in need of additional income can find new paying opportunities much more efficiently than ever before.

While most Americans are familiar with Uber by now, there are also other apps that can introduce you to numerous jobs you might be interested in. SideHusl.com, for instance, shows how much you’re likely to earn from a gig and connect you to side jobs. The benefit of SideHusl is that you can see what you’ll make after taking into account different expenses of the job. The app also makes it easier to find gigs for people with different skills.

5. Refinance or consolidate debt

When it comes to dealing with existing debt, there are typically two ways of dealing with loans and other debts: consolidation and refinancing.

Consolidation combines multiple loans into one. You streamline the debt paying process by consolidating. Instead of having to deal with multiple payments, you can make a single payment that addresses several debts. Refinancing, on the other hand, replaces one or multiple loans with a better loan. The goal of refinancing is to replace your current loan with one that has lower interest rates. This saves on the lifetime costs you will pay.

Debt consolidation works for multiple types of debts, which include:

  • Credit cards
  • Medical bills
  • Utility bills
  • Payday loans
  • Student loans
  • Taxes
  • Bills that have gone to collection

You could use a debt consolidation loan for your debt. Online lending marketplaces, such as the one by MagnifyMoney, can help you find and compare lenders. LendingTree, which owns MagnifyMoney, offers a personalized loan tool. Input your information and the tool may spit out loan offers from up to five different lenders you can compare.

Should you refinance or consolidate your debt?

Debt consolidation is best done when borrowers have a decent credit score and are experiencing a one-time reason for falling behind in paying their debts. The better your credit score, the more options you will have when shopping for a consolidated loan. These offers will typically feature better interest rates than if your credit score were poor.

On the other hand, debt consolidation can be bad if your debt is significant. If you have recurring reasons that you’re unable to meet your debts, then you may not want to choose a consolidated loan. Instead, a debt management plan may be a better alternative.

But if you have multiple debts you’re making payments on, debt consolidation could make repayment easier. And it could reduce your overall costs of repayment.

Loan refinancing works differently from consolidation because rather than combining multiple loans into one, refinancing merely replaces one existing loan with a new one. You still have to make separate payments if you’re refinancing several loans.

Thus, refinancing can be helpful if you only have one debt you’re struggling with. Refinancing can help reduce your monthly payments by extending your loan term or by lowering your interest rate. And if you want to pay off your debt sooner, you could opt for a shorter term.

Conclusion

If you’re in debt, there’s no reason to feel alone. Many people are in the same situation, and there are many effective ways of getting out of debt. Whether by increasing your income, reworking your spending or renegotiating your debts, there are strong steps you can take toward achieving financial freedom.

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