stressed about debt

7 Steps To Getting Out Of Debt On A Low Income

Are you tired of living paycheck to paycheck and feeling trapped by debt?

It can be difficult to get ahead financially when you’re working with a low income, but it’s not impossible.

We’ll show you seven battle-tested steps you can take to get out of debt and start building a brighter financial future, no matter how much (or how little) you make.

Whether you’re struggling with credit card debt, student loans, or any other type of debt, these tips will help you get back on track.

So, buckle up and let’s get started on the journey to debt-free living!

Step 1 – Stop Taking On New Debt

No matter how much or how little money you make, if you are continuing to borrow money by using credit cards or taking out loans, it will only increase the amount of money you owe.

When you stop borrowing money like this, you are able to stop that debt balance from increasing.

So when you go to buy something, stop and think about how you are going to pay for it.

If you intend to put it on a credit card or to take out a loan, you need to find another way to pay for it – or just don’t buy it until you can afford it.

And if you need to pay for something vital, such as medication, then try to come up with a way that you can make enough extra money to pay for it, such as selling things you don’t need.

Keep in mind that if you continue to rack up more debt, then you are digging an even deeper financial hole that you may not be able to dig yourself out of.

So work on reframing how you spend money and focus on using cash instead of credit cards and loans.

Step 2 – Start Tracking Your Spending Now

For most people in debt, it’s the little things that you spend money on that add up to create a massive pile of debt.

And you probably don’t even realize it.

So, start tracking every single cent that you spend in a month to see where your money is going.

You will probably see things like fast food lunches, streaming service subscriptions, your daily Starbucks coffee, groceries, utility bills and more.

Once you see where all of your money is going, you can take action to stop some of that leakage.

Identify monthly expenses that aren’t necessary so that you can start putting more of your money towards paying down that debt.

You can cancel some of those streaming services, at least until you get that debt under control. 

Don’t be fooled into thinking that a few dollars a month on things like this won’t make much of a difference because those small amounts add up over time.

This is likely why you’re in so much debt to begin with.

In fact, the most financially successful people in the world track their spending like this, which is why they have so much money in the bank.

If you really want to get out of debt this year, then you must know where you are spending all of your money so that you can make smarter choices.

stopping debt

Step 3 – Make A Plan With A Budget

You’ve probably heard this before, but making a budget that you can stick with is essential for getting out of debt on a low income.

You can use a budgeting app, a spreadsheet, or even an old school notebook for your budget.

Use your spending tracking and your fixed monthly bills, such as rent and electricity, to come up with a monthly budget.

Traditionally, your budget should be split into three buckets.

Those buckets have a 50/30/20 breakdown that looks like this:

  • 50% of your monthly income should go towards necessary expenses like housing, utilities, and groceries
  • 30% of your monthly income should go towards whatever unnecessary things you want like streaming services, dining out, concerts, video games, etc.
  • And 20% of your monthly income should go towards debt payoff and savings

Obviously, you can make more progress towards debt repayment by lowering how much money you spend in that 30% bucket and putting more money towards your 20% bucket.

Step 4 – Find Ways To Save Money On Your Expenses

Now that you have your budget split into those three buckets, it’s time to take a good, hard look at those first two buckets.

Can you think of any ways that you can lower those expenses, at least until you get that debt paid off?

For utilities, you may be able to get on a low income plan that reduces your monthly expenses.

You can also try changing the thermostat by a degree or two so that you save a little on the bills without suffering too much.

For groceries, check to see if your store has an app with digital coupons that you can use.

And avoid paying for grocery delivery, unless you aren’t able to get yourself to the grocery store.

Also try to shop the sales each week instead of making impulse buys.

If you are a renter, try asking your landlord for lower rent in exchange for a longer lease period.

Or, if possible, consider moving to a cheaper place.

And for other things that you must buy, try shopping for used items on Facebook Marketplace, Nextdoor, or local thrift shops.

Sometimes you can even get brand new items as a discount this way.

Step 5 – Pick A Debt Payment Strategy

Paying just the monthly minimum on your debt isn’t enough to get you out of debt.

In fact, if you pay just the minimum payment on $20,000 of credit card debt it could take you more than 30 years to pay it off completely – and you’d spend over $70,000 in the process!

That’s why you need a strategy that works on actually paying off the debt. 

The two most popular debt repayment strategies are the Debt Snowball and Debt Avalanche strategies.

debt snowball

For the debt snowball strategy, you list all of your debts in order from smallest balance to highest balance and then focus on paying them off in that order.

So any extra money you have for paying off debt gets applied only to the smallest balance on your list.

The benefit of this strategy is that you reduce the number of outstanding debts that you have in the quickest possible way.

For the debt avalanche strategy, you list all of your debts in order from highest interest rate to lowest and focus on paying them off in that order.

So any extra money you have for paying off debt gets applied only to the balance with the highest interest rate on your list.

The benefit of this strategy is that you reduce the amount of interest you’re paying each month, which frees up more money to pay down debt.

Step 6 – Cut Your Spending

Now that you’re on a budget and working on a debt payment strategy, let’s look for ways that you can cut your spending to free up even more money for debt payoff.

Food is one of the places where you should be able to reduce your spending.

If you’re still buying name brand stuff, then switch to generic or store brand.

Instead of popping into the grocery store and randomly buying food for the week, instead plan your meals in advance – and do that planning based on what the store has on sale.

You can view each week’s ads on your grocery store’s website.

With meal planning, you know in advance what you’ll be eating which means enough food will be in the kitchen without you needing to use DoorDash or hitting up the drive through on your way home.

If you work outside the home, then make sure that your meal planning includes lunches that you can bring to work – and not freezer meals because those tend to be more expensive than if you make a sandwich or take in leftovers. 

And if you have problems with impulse purchases at the grocery store, then order your groceries online for pickup so that you’ll only buy what you need.

For entertainment spending, stopping going out to happy hour and spending money on things like video games. Instead, look for free things that you can do, such as free online games or getting books and movies from your local library.

You can also use free streaming services like Crackle, Amazon Freevee, and Tubi TV instead of paying for Netflix.

Step 7 – Find Ways To Earn More Money

Bringing in more money is a great way to speed up your debt repayment.

If your job will give you extra hours or let you work overtime, then this is an easy way to add a little more money to your paycheck.

If your schedule allows for it, then getting a part-time second job is another way that you can increase the amount of money you make to pay off debt faster.

This could be something like a fast food job or even something like driving for Uber or being a DoorDash delivery driver.

You could also start a side hustle, such as selling artwork on Etsy or starting a niche website to do some affiliate marketing.

Of course, a side hustle tends to take more time to bring in money compared to getting a part-time job.

Another option is to do something like Bing Rewards where you can earn free gift cards for places like Target, which allows you to save money on groceries and household goods.

Final Word

Getting out of debt on a low income is possible with a little bit of discipline and effort.

By following the seven steps outlined above you can start taking control of your finances and work towards a brighter future.

Remember, the key to success is to stop taking on new debt, track your spending, make a budget, find ways to save money on expenses, pick a debt repayment strategy, cut your spending, and find ways to earn more money.

With these steps, you’ll be well on your way to financial freedom and a debt-free life.

Don’t be afraid to take the first step and start making changes today.

Every small step you take will bring you closer to your goal.

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