How to Pay Off Debt With a Low Income
Want to know one of the most common myths when it comes to your money? That you can't get out of debt if you have a low income. This is simply not true! Having a low income does not mean you cannot get out of debt. However, it does mean that emergencies can ruin your financial progress paying that debt off. Here's how you can get out of debt making a low income:
1. START AN EMERGENCY FUND FIRST
Starting an emergency fund is essential to getting out of debt. Why? So you can pay cash for your unexpected expense instead of reaching for your credit card furthering yourself in debt. Start funding an emergency account that you put money in every month until you reach $1,000. You can start with small amounts - even $25 a month can make a difference. It is essential that this is a separate account from your checking or savings. You don't want to trick yourself thinking you have extra money to spend when it is for emergencies only.
2. PAY OFF THE SMALLEST DEBT FIRST
Paying off debt can get addicting if you do it right. I know, it sounds crazy! However, there is a strategy to paying off debt. One of the common mistakes that happen when paying off debt is focusing on the most significant dollar amount, get overwhelmed, and refuse to address it. Don't do this! Instead of trying to pay off your massive student loan as your first debt payoff, start with your smallest dollar amount. When you start with your smallest dollar amount, you will be able to pay it off faster. When you pay it off, you get excited to tackle the rest. See the strategy working? Money has psychological and emotional ties so do what works and pay the smallest first.
3. BUY WHAT YOU VALUE
Most people look at budgeting as cutting things out. Instead, focus on what you love and where you want your money to go each month. Think to yourself "Do I want to be spending money on this?, Do I value this enough to buy?" When you change the way you look at budgeting, it becomes easier to do. Also, when you realize that buying an item may keep you trapped in debt, it is easier to put it down and walk out of the store. Write down a list of things you buy or use personal capital so that it can aggregate your spending for you. Look at the list and determine which items are must have and what items are nice to haves. Try cutting out the nice to haves. If you do, you will be shocked at how much money is left over at the end of the month.
4. EARN MORE
At the end of the day, if you are unable to survive on your income, please explore other options to making earn more money. You can only save so much money when you have bills and expenses that keep piling up. The gig economy is growing, and there are many opportunities to switch careers or explore freelancing or side hustles. Check in with your local community center for free counseling and career options.
It is not impossible to pay off debt with a low-income. If you have a strategy in place, you will be able to overcome to overcome your debt and move on with your life. If you don't, your money will continue going to things you don't value. Look at paying off debt as a way to further your growth. Make it a priority this year to pay off your debt. I believe in you!