Not all of us make six figures which means paying off debt can be tough. But it’s not impossible. We’ll show you how to get out of debt, even on a low income.
Being in debt is an emergency. And like any emergency, the longer you wait to deal with it, the worse it gets. So you can’t wait for the next big raise, the next new job, the winning lottery numbers to help you tackle it and show you how to get out of debt.
You can tackle it right now. Don’t let the emergency get worse. You don’t have to be making big money, or even more, than you are making right now to at least start paying off debt.
Cost of Debt
If you already have debt then probably one of your biggest monthly expenses is dealing with that debt. That sucks and you’ve gotta do something about that ASAP.
The best way is to just get the people you owe money to forgive some of what you owe. Sounds crazy but it works surprisingly often – to the tune of billions of forgiven dollars a year. Imagine if you owed $10,000 and told your credit card company that you can only pay back $3,000 or you’ll have to declare bankruptcy and in turn pay none of it. They would rather get something over nothing and will either flat out agree or come with a counter offer like $6,000.
Either way, it’s a free debt reduction and all you need to do is call your credit card company. Or, if you’re unsure of your negotiation skills just bring in someone like Freedom Debt Relief. Their cost is roughly 20% of the amount of debt they get forgiven so it’s a pretty low-risk deal since it costs you nothing if they can’t help.
The Whole Picture
First thing is first. You need to sit down and figure out exactly how much you owe on your debts, how much is going out, and how much is coming in. If you don’t have a Mint account, set one up. This is the easiest way to see your overall financial picture.
Mint is free to use, and once you link your bank accounts and credit cards, the transactions will be automatically pulled into Mint, so you don’t have to do any tedious entering.
It’s scary to tally up how much debt you owe, but it’s the first step in eliminating it. Compare how much is going out (all of your bills and expenses) and how much is coming in (all of your income) just using the minimum payments on the debts, not the totals.
Grow Up And Budget
Is what’s coming in MORE than what is going out? How much is left over at the end of each month? You’ll have at least that amount to start paying off debt. We want to make that number higher and we will, but it’s good to see we at least have some extra money after expenses.
What if there is more going out than coming in? We’re going to fix that. That can happen when you start relying on credit cards and is probably at least part of the reason you’re in debt.
Now we have all of the numbers we need to get started. We know how much we owe, what our expenses are, and what we have coming in. Now we need to make a budget. You can set this up in Mint since all of your transactions are already in there.
For the time being, the only budget in the minimum payments on your debts, the amount you’ve (hopefully) already been paying. If you haven’t been paying even the minimums, budget those amounts in now.
Also budget in some money for non-essentials like going out to dinner or a movie, a few drinks at happy hour.
Yes, your debt is an emergency, and if you were a robot, you would throw every dollar that wasn’t meant as an essential expense at it. But we aren’t robots, and most humans can’t deprive themselves entirely for long stretches without going off the rails.
Getting out of debt is like losing weight in that way. If you never allow any wiggle room for yourself, you can’t stick to the program. So let some money in your budget for non-essentials.
We’re going to start finding extra money and making more money to get rid of that debt as fast as we can.
Cutting Costs: The Big Stuff
If you are thousands of dollars in debt, making coffee at home and bringing your lunch to work aren’t going to be enough to fix the situation. We’re going to do those things too, but they aren’t enough. You need to concentrate first on the significant expenses.
Even if you are at 30% or under, if you have debt, this needs to change. You have a couple of options; find a cheaper home, get a roommate, move in with your parents, or move to a place with a lower cost of living.
Moving towns may not be practical for everyone, but if you’re living in an area where housing costs are prohibitive, and you’re in a profession where you’re not ever going to be making enough money there to get under that 30%, it’s something you need to consider.
I know it’s fab to live in New York City or Los Angeles or San Francisco but if you’re going to be forever in debt and never able to retire, it’s not worth it. I know it takes money to move so you can choose from our other options; finding a cheaper place, getting a roommate, moving back in with your parents until you’ve saved enough to make a move.
If your debt is not that high or if you’re in debt now but your career and salary will advance within your field, you don’t have to do anything as drastic as pick up and move, but you still need to cut housing expenses so consider those options mentioned above, but you can also consider another.
If you’re in a desirable location, rent your place out to Airbnb. Even if you just crash with a friend for one weekend a month, you could bring in a couple of hundred extra dollars, and that will go a long way to paying off your debt.
How much you can make with Airbnb varies based on a lot of factors, but nearly 50% of users make more than $500 a month.
Getting from place to place is likely our second most significant expense. Even if you are lucky enough to live in a city with good public transport, it’s still not free. A monthly Metro Card for the NYC subway is $116.50. That might seem like a bargain if you are paying a car payment and the cost of gas in the burbs, but remember, NYC cost of living is expensive!
Some employers subsidize the cost of a public transportation pass or allow you to use pre-tax money to purchase one. Ask your HR department if they have any such programs available.
Experiment for one week, if you are a two car family, have your partner do the same. Write down every car trip you make. At the end of the week, go over the list. Are there are trips that could be cut out by planning errands more efficiently? Any trips that could be made by bike or by foot?
How many trips could you and your partner combine? Can you carpool to and from work? If you’re a two-car family who is struggling with debt, cutting down on one car can make a big difference. It might be painful but it your debt is an emergency.
It’s convenient to have two cars but how is it necessary? What would you do if one car was totaled and couldn’t be replaced right away? Do that and sell the other car. Not only will you get rid of a car payment but the cost of insurance too.
Walking or biking to work have benefits beyond just saving money too. More exercise, less pollution, less aggravation. When I worked in an office, I always walked to and from work. Sometimes as much as 45 minutes each way and in all kinds of weather. Such was my mania to avoid giving the MTA one cent I didn’t have to give their crummy service. And to save money of course.
If you keep a budget, and you should, you’ll probably see this category as one of your biggest money hemorrhages. If you aren’t tracking your spending, start now. You’ll likely be surprised and maybe horrified at how much you spend here.
Maybe you don’t like to cook; some people don’t. So you eat out a lot. You probably also don’t like cleaning, doing laundry, or running errands. But you still do it because it’s part of being a grown up. Think about it; you could outsource those other things like you’ve been outsourcing feeding yourself.
So why don’t you? That would be a massive waste of money. Well, how is eating any different? It doesn’t so knock it off! I won’t even tell you that you have to eat healthy, although you should, and you can go affordable. Buy lots of frozen dinners when they’re on sale, buy lots of Ramen, whatever. But you must start eating at home and taking your lunch to work.
Go to your fridge, freezer, and pantry and see what you can use up before you buy more groceries. If you have a weird assortment of things, you can use a site like My Fridge Food to turn those ingredients into a meal. Think of it as an episode of Chopped!
Once you’ve eaten your kitchen clean, you’ll need to go food shopping, and you’ll need a meal plan. Planning out your meals for the week not only keeps you from buying things you don’t need, but it’s what makes it possible to batch cook.
I know you're trying to save money but if you don’t already have one, buy a slow cooker. They make batch cooking easy because once the food goes into the stove, you don’t have to do anything else. Portion out your batches, so you just have to grab a container in the morning on your way out the door, so you don’t have to buy lunch.
Cutting Costs: The Small Stuff
This is only for those people in debt. If you’re just looking for more money to invest or save, I don’t like to advise people to watch every cent and never buy little things like coffee on the way to work. But if you are in debt, emergency.
So you’re going to have to watch those little purchases that add up. Go through the expenses in Mint. It’s this little stuff that can add up and that can be eliminated when you have a debt to pay off.
Make Some Extra Money
It’s easier to cut spending than make more money, but making more money usually generates more significant numbers and if you’re in a lot of debt, working only one job unless you have significant family commitments is not an option. You need to have at least one additional income stream until you are out of the woods.
It wont last forever. Remember that. I know none of these suggestions are fun or easy. No one wants to move to a smaller apartment, never buy coffee out and work every weekend. But, what is our refrain? Emergency. You have made a plan; you are making sacrifices, you have extra money coming in. Stick to your plan. If you have a bad day or week, don’t give up. It took time to acquire this debt, and it will take some time to pay it off.
But you will, and you will strangle the debt that has been strangling you. Afterwards, send me a message and let me know how you feel! I promise you it will be the most liberating feeling in the world.
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