Getting out of debt when you're a low-income earner is not a walk in the park. Lots of tips online may not be appropriate for you. The good news is that you are not the first one to be in such a situation. You are at the right place. We studied hundreds of strategies deployed by other low-income earners who successfully reduced their debt and achieved financial freedom. Here are five practical tips to help you reduce your debt more effectively.
Stop Digging to Reduce Your Debt
When your monthly expenses exceed your paycheck, it can be very tempting to take on more debt. This situation is even worsened by lenders interested in keeping you in such a vicious cycle to make a profit.
The proverbial phrase "If you find yourself in a hole, you need to stop digging" can be an eye-opener here. Accept your situation. The first bold step to take to reduce debt is to stop taking more. The more debts you take, the harder it will be to get out of that debt hole.
Know the Numbers
After accepting your situation, it's time to get to the details. And here, we're talking about knowing exactly how much you owe and to whom. This will help you make informed choices going forward. If you don't have all the details, ask for help. You can also obtain some of that information from credit reporting agencies. But don't stop there.
Break down that information to finer details such as the lender, amount, and balances. Keep in mind that some reports may not include everything you owe. So try as much as possible to include other debts like your bills, and money borrowed from family and friends.
Work on a Budget
Now that you have a list of debts, it's time to crunch the numbers. Compare how much money comes in versus what goes out. While at it, keep in mind that financial experts recommend 50/30/20 when budgeting. 50% of your income goes to needs, 30% to wants, and 20% to savings.
After listing all your income and spending, examine what's left. If you have any balances, it may be wise to channel more into debt repayment to reduce your debt faster. If you don't have any, don't beat yourself., consider the next steps.
Keep Spending at a Bare Minimum to Reduce Your Debt
To reduce your debt faster, you need to keep your spending at a bare minimum. This means cutting your spending in certain areas. Although many people recommend cutting on what you can do without as a first step, we encourage you to go a notch higher. Look at your major expenses, such as transportation and rent.
It's not uncommon to see people struggling to pay hefty prices on car payments when they can trade down to less expensive vehicles. Similarly, don't allow a pricey apartment to break the bank. Consider moving to a less expensive place.
These are bold steps that you may have to take to reduce your debt faster. Other strategies to consider include:
- Looking for coupons before making purchases
- Preparing meals at home instead of eating out
- Cutting on your gym membership and exercising at home
- Stopping subscriptions that you no longer use
- Relying on free entertainment in your areas like hiking and free concerts
Make More Money
When controlling their expenses, many people tend to focus so much on ways to save money. Though it is a great step, it is just one side of the coin. The other side is finding ways to make more money.
The more money you make the easier it might be to reduce your debt. So, it may be wise to find side hustles or part-time jobs.
Reduce Your Debt on a Low Income
If you work full, consider looking for new jobs with higher pay or asking for a raise from your employer. Remember to use the extra cash to pay down your debt.