7 Tips to Pay Off Debt on Low Income

When you’re in debt, you can feel helpless. And when you’re in a position where you have low income, it can feel like you’re stuck.

I’m here to tell you that you’re not.

I've helped thousands of women+ get out of thousands of dollars of debt – even women+ in minimum wage jobs or on unemployment. Today, I’m going to give you 7 tips to pay off debt on low income and kickstart a life of financial freedom.

1) Evaluate your current financial situation

Before you start taking action, take a moment to evaluate your current financial situation. It’s important to have a thorough understanding of your starting point.

Some questions to consider:

What is your net wealth?

To calculate your net wealth, subtract your total liabilities (i.e., what you owe) from your total assets (i.e., what you own).

What you want to know is whether your net wealth is positive or negative. This will give you a good snapshot of your overall financial situation.

How much do you owe?

If you have debt spread across multiple sources, like different credit cards, take some time to figure out the exact amount you owe.

How much is the interest rate on each debt?

The interest rate is going to have a huge effect on how much money you end up owing. A huge reason credit card debt is so dangerous is because the interest rate is so high. On average, credit cards have an interest rate of 24%.

Knowing the interest rate will affect your debt repayment plan, which I’ll get to in a minute.

How much money do you have going in and coming out of your bank account every month?

If you have more money going out of your account than you have coming in, then you’ll never be able to get out of debt.

Which brings me to tip #2…

2) Create a budget

Like I just said, it’s crucial to make sure that you aren’t spending more than you’re making.

If you’re really serious about paying off debt, you may want to adopt a bare bones budget for a while.

A bare bones budget is when you completely cut out all unnecessary expenses – no streaming services, no dinners out, no tickets to concerts or sporting events.

To be clear, this is an extreme option if you badly need to save as much money as possible. It’s like crash dieting; it is not a healthy long-term solution. But it can give you a jumpstart if you’re in desperate need of money.

For a more sustainable option, I recommend the 50/30/20 budget. This is when you spend no more than 50% of your monthly income on needs, 30% on wants, and save at least 20%. We have a full video on this, which I’ll link in the video description if you want to learn more.

3) Explore ways to increase your income

If you can’t cut down your expenses any more, then you need to figure out a way to make more money.

There are a few ways you can increase your income. The easiest way would be to ask for a raise.

How to successfully as for a raise!

But you may need to look into earning additional income by starting a side hustle.

4) Negotiate with creditors

Contact your creditors to discuss your financial situation. They may be willing to negotiate lower interest rates, reduced payments, or a temporary hardship plan.

Here are a few tips to negotiate with creditors:

• Before contacting your creditors, prepare a detailed overview of your financial situation, including your income, expenses, and the reasons for your financial hardship. This will show your creditors that you're serious and have thought this through.
• Have a clear idea of what you're asking for, whether it's a lower interest rate, a reduced monthly payment, or a temporary forbearance. This makes it easier for both parties to reach an agreement.
• Let your creditors know that you're committed to repaying your debt and that your financial hardship is temporary. This can make them more willing to work with you.
• If you reach an agreement, ask for it in writing. This ensures that both parties are on the same page and protects you from any potential misunderstandings in the future.
• Keep records of all your communications with creditors, including dates, names of representatives, and the details of your conversations. This documentation can be crucial if any disputes arise in the future.

5) Consider debt consolidation

Explore options like debt consolidation loans or balance transfer credit cards to streamline your debt and potentially reduce interest rates.

If you're struggling to pay off a large amount of debt or a large number of debts, then debt consolidation may make the situation more manageable and less complex.

Debt consolidation rolls multiple debts and typically high interest rate debt, such as credit card debt, into one single payment.

Debt consolidation might be a good idea for you if you can qualify for an interest rate that is lower than what you are currently paying on your current debts. That will help you reduce the total amount that you pay to get out of debt overall and help you reorganize your debt so you can pay it off even faster.

You may want to consider debt consolidation if...

• Your monthly debt payments, including your rent or mortgage, are below 50% of your monthly income before taxes.
• Your credit is good enough to qualify for a 0% balance transfer credit card or a low interest personal or debt consolidation loan. This means having a credit score of about 690 or higher.
• Your monthly cash flow consistently covers the payments towards your debt.
• You can choose a consolidation loan that you would be able to pay off within five years.

6) Explore financial assistance

Look for government assistance programs or local charities that may be able to provide financial assistance or help with basic needs.

This could involve looking into debt consolidation loans, like I just mentioned, or employer assistance programs.

7) Implement a debt repayment plan

Now that you have all your ducks in a row, you need a plan to pay off your debt.

There are several different strategies you can use to pay off your debt, and each has different advantages.

Two of the most popular are:

1) The snowball method: pay off the smallest debt first, which is psychologically encouraging. This allows you to gain confidence and momentum as you move to larger debts.

2) The avalanche method: target the debts with the highest interest rates first. This approach helps you save more money over time.

But what I like to recommend is a combination of those two – what I call the intelligent snowball method.

In it, you pay off the smallest debt first, so you get that adrenaline boost and feeling of satisfaction when you make progress. But then you move on to a debt that has a higher interest rate.

Want Extra Help Paying Off Debt?

Be patient and persistent as you go through this process. It may not be easy or fast, but if you keep taking steps forward, you can achieve a life of financial freedom and security.

And like I said, if you want to hear the story of how Laurie-Anne went from $40,000 in debt to making money every month through her investments using our signature wealth-building system, be sure to check out our free masterclass!

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