Getting out of debt is a valiant objective, no matter your income level. With a little planning and dedication, you can pay off your debt, even with a low income. Your financial freedom is worth some short-term sacrifices in order to start living debt-free and working toward your money goals. That being said, here are some realistic tips for how to get out of debt on a low income.
Evaluate your financial starting point
First things first: figure out where you’re starting from. This might be a gut-check moment, especially if out-of-control spending is what got you into debt. And you’re not alone—the average credit card debt per US adult cardholder is $5,673. But for most people, debt comes from circumstances outside your control—student loans, unexpected medical bills, personal disasters. Regardless of why you’re in debt, you need to get in touch with where your finances stand.
Track your income
First, look at your income streams. Think about your actual income from your job or any government assistance you receive. Then brainstorm any potential cash you could bring in. Get creative. Just because you have a low-paying day job doesn’t mean you can’t earn a side income.
Maybe you can get a part-time job, babysit, freelance, or get on a gig app like Task Rabbit or Lyft. Maybe your current job has more earning potential, either from overtime pay or by negotiating a raise. You might also have some assets to put to work, like renting out a room in your house, your parking spot, or an in-demand tool. Lastly, selling clothes, jewelry, furniture, sports equipment, or other items could be a source of cash.
Consider your recurring bills
Next, get an overview of your bills. The average U.S. household pays $914 for their essential monthly expenses. Consider what’s totally necessary—like food, rent/mortgage, insurance, medicine, transportation, utilities. Of those, figure out if they’re fixed, or if you could trim some costs.
You’ll also want to think about any potential expenses that you should budget for, either because they’re annual (rather than monthly), or because they’re on the horizon. This might be things like property taxes, childbirth if you’re pregnant, or even a trip home to see a sick relative or for a holiday. You want to map out anything that might pop up and send you further into debt if you’re not prepared.
Document your debt
Lastly, you need to see where your debt fits in. This includes car payments, credit card statements, medical bills you’ve racked up, or anything else you owe. Factor in the interest rate, term, monthly required payments, late fees, and penalties. Lay out the whole picture to see what you need to combat first.
Build a budget
The beauty of a budget is that it’s totally customizable to you and your needs. Try a zero-sum budget, where each cent is accounted for—even if that means sending it to your emergency fund or debt repayment. For every dollar that comes in, assign it to an expense, savings account, or debt balance.
It might feel tedious, but think of it as empowering—you get to choose exactly how your hard-earned money is spent and you can save money. The idea is to see where there are gaps and opportunities so that you can take action. And then, of course, one of the most important steps is to stop taking on new debt as you work to pay down your existing debt.
Tips to cut costs
To get out of debt on a low income, something’s gotta give, right? Your budget is for your eyes only, so be realistic and completely honest with yourself. Are you really only spending $20 each month on food delivery? Or is it closer to $70? If that’s the case, you need to decide whether that’s a non-negotiable necessity that improves your quality of life, or it’s an area for big potential savings that would help you pay off your debt fast. Reflect on each budget line in this way.
Here are some areas where you might be able to cut back on your budget costs:
- Groceries are a necessity, but give it some extra thought next time you’re at the store. Make sure you’re buying staples in bulk and specialty items on sale, then using coupons wherever possible.
- Take public transportation or start carpooling instead of driving your car solo.
- Shop generic rather than the name brand. This can save you money especially where the quality is comparable.
- Spend less on takeout and in restaurants by cooking more meals at home. Here are some of the best cheap meals. This can also positively impact your health and any associated costs there! One easy fix: Leverage meal planning to pack your lunch for school and work. Plus, be especially strict about “convenient” snacks and drinks that are inflated in price. If you want to go the extra mile, you can even meal prep to save time and cut down on food waste.
- Buy used—clothes, homewares, appliances, sporting equipment, the works! Not only is this better for the environment, but it’s also better for your wallet. With Facebook Marketplace, thrift shops, and secondhand apps and websites, it’s easy to find exactly what you’re looking for at a price that fits your budget.
- Be cautious of monthly subscriptions. This includes software, streaming platforms, meals/groceries, consumer products, and tech support (like a home security system). You might be paying for something each month without even realizing—or using—it! If you’re not willing to cut it out altogether, look into where you can downgrade to a lower, more affordable tier.
While it takes more planning to spend strategically, it can definitely pay off as you see that debt balance continue to go down. Plus, any lifestyle changes you make now don’t need to be permanent. When you’re debt-free and have a higher income, you’ll be able to splurge on expenses that make you feel good, not guilty.
Reallocate your spending
The whole point of cutting down your spending is to reallocate it to debt reduction and savings. The ONLY way to pay off debt fast with a low income is to make payments above the minimum requirement. If you have multiple sources of debt, focus on tackling one at a time. Pay off that balance as quickly as possible, while still continuing to make minimum payments on any other debt.
You might want to prioritize your debt with the highest interest rate to pay down first. This will save you more money in the long run because you’re avoiding the most amount of interest.
For example, imagine you have $1000 in debt at 15% interest and $1000 at 5% interest. With the 15% interest rate, you’ll end up owing $150 extra each month in interest alone. Whereas, that lower interest rate will only cost you $50 in interest. So, if you work to pay down the balance with the high interest, the burden is decreased each month. By the time your balance is $500, your interest payment is $75. When your debt is $100, you only need to tack on $15 in interest. Then you’ll be ready to take on your other debts that didn’t accumulate as quickly.
If you need a bit of momentum to get you started, you could choose to pay down your smallest debt (aka the snowball method), regardless of interest rate. Any debt-repayment victory is worth celebrating with a happy dance!
Other debt workarounds
After you’ve done all the other steps—evaluating where you are financially, exploring additional streams of income, cutting costs wherever possible, and starting your debt repayments—you might need next-level techniques. A word of caution: these are last-ditch efforts that come with some potential risks, so be sure to research carefully before committing.
Debt consolidation may be an option for you, but it comes with strings attached. Basically, you combine (aka consolidate) all your outstanding debt balances into a single loan. That new lender pays off all your debt, but you owe them the total debt amount, plus interest. One way this could be advantageous is if you can secure a lower interest rate through the loan than what you’re paying your existing debtors. This makes the payments slightly more affordable and more convenient because you’re paying one lender instead of many. However, it's important to determine if debt consolidation is a good idea for you.
If you need to buy time or come into a larger sum of money to put toward your debt, you might consider a balance transfer or a balance transfer credit card. The strategy here is to obtain a 0% interest rate for a fixed period of time. During this period, you’d aim to pay down as much of your debt as possible, saving significantly on interest fees you’d otherwise pay.
Communication with creditors
One low-risk creative solution is to contact your creditors. Depending on your case—and maybe a bit of luck as to who you get on the phone—you might be able to negotiate your debt conditions. Even something temporary, like a reduced interest rate or eliminating an interest payment, could offer huge relief and progress.
From overwhelmed to consistent and persistent
Living with debt can feel suffocating, but take heart in knowing there’s light at the end of that financial tunnel. And once you get out of debt, don’t fall back into that crushing cycle. The ideal situation is to spend your money on what you want and need, rather than paying interest that doesn’t serve you. Remember, cutting costs now to pay down your debt is setting you up to live more abundantly in the future. Be sure to check out our best tips on how to save money on a low income. We've also complied money tips and programs for families living on a low income.