Getting out of debt is never easy. Especially, for those with low income, paying off debt can be a monumental challenge.
The good news is that it is still possible to pay your debt off — even if you do not have plenty of money coming in.
Here are five steps you can take to get out of debt on a low income.
First, stop accumulating more debt
As they say, when you are in a hole, you should stop digging. Borrowing money to pay off your debts is not a good idea, especially if you are living paycheck to paycheck.
If you are not careful, you might find yourself in a debt trap, wherein your earnings might only be sufficient to pay the interest, but not to repay the principal.
The only exception to this rule is debt consolidation, where you take out a low-interest loan to pay off all your debts.
Get a balance transfer credit card
If you have two or three credit cards and struggling to make the minimum payments, it might be a judicious idea to get a balance transfer card. A balance transfer card not only allows you to consolidate your credit card debt, but also gives you the opportunity to pay off your debt without any added interest.
Even if you are not able to pay off your debt during the interest-free period (which can be anywhere from 12 to 18 months), you can still pay off a substantial amount of debt.
By the time the bank starts charging interest, you will only be left with a small amount of debt, which you can pay off easily.
Pay off your debts one at a time
There are two methods available to pay off your debts — the ladder method and the snowball method.
In the ladder method, you start with the debt with the highest interest rate, pay it off by making additional payments every month (apart from the minimum payments), and then move on to the debt with the next highest rate. It is a top-to-bottom approach, similar to climbing down a ladder.
In the snowball method, you pay off the smallest debt first and move your way up to the biggest one. It is a bottom-to-top approach.
It’s called the snowball method, because you start off slowly and gather momentum as you pay your way through your debts, similar to a snowball growing larger in size and gathering momentum as it rolls down a hill.
Increase your income
Try to increase your income by getting a second job. If it is not possible, you can take up a side gig, become a freelancer, or start a home based online business.
You can even make money by renting out some of the stuff you own. Whatever you choose to do, make sure the additional income is only spent on debt repayments and nothing else.
Be a frugal spender
Penny pinching is a good habit to have when you are trying to pay off your debts. Use coupons while shopping, cook your own meals, brew your own coffee, walk, or use public transportation as much as possible, cancel all your monthly subscriptions, cancel your gym membership, buy used items, and sell everything you do not need.
Every penny you save can help you pay off your debt faster.
