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How Can You Become Debt-Free On a Low Income?

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Do you have debts but worried since you think your income is not enough to repay them? It is important to become debt-free on a low income. Because, when you’re in debt, most of your income goes to repay your dues.

So, unless you clear your debts, you won’t be able to manage your finances and build a good financial future.

So, first of all, believe that you’ll be able to repay debts on a low income.

Here is how you can repay your debts even if your income is less.

So, unless you clear your debts, you won’t be able to manage your finances and build a good financial future.

So, first of all, believe that you’ll be able to repay debts on a low income.

Here is how you can repay your debts even if your income is less.

Analyze your finances

This is the first step as you need to have a clear picture of your financial situation. So, assess how much you’re getting in hand and how much you’re spending.

Collect your credit card and bank statements and have a look to assess it.

Now, calculate how much you owe on each of your accounts. List it irrespective of how small it is.

It will help you to plan a suitable debt payoff strategy.

A well-renowned Dave Ramsey’s strategy to tackle debt is “Debt Snowball Method”. Read it here.

Plan a budget which you can follow

Now comes the most essential part, planning a realistic budget. By realistic I mean a budget that you’ll be able to follow.

Either work on a spreadsheet or sit with a pen and paper and list your expenses how you’ve been spending so long. Now assess carefully and plan your expenses as you want to in order to save a significant amount every month.

Do not expect to plan a suitable budget in the first month itself; trial and error will help you plan the perfect budget.

So, don’t worry if you’re not able to follow it in the first month. However, try to keep aside your savings first and then plan your expenses on the remaining amount.

Cut down expenses as much as you can

Especially when you’re trying to repay the debt on a low income, you need to cut down your expenses. This is the key to making your budget successful.

So, distinguish between your ‘needs’ and ‘wants’. Do not think that you’re compromising since you have to reduce spending on your ‘wants’. Rather, look at it this way; you’re saving so that you can spend on the things you value the most.

There are certain things which you don’t notice but it can help you save more. For example, instead of eating out, prepare meals at home. It is also healthy to have meals at home. And when you become healthy, you can avoid medical expenses.

Also, skip gym memberships and take a stroll outside. If the weather permits, you can enjoy nature and have a good morning or evening stroll with your friends or family.

Try to increase your income

It is always better to increase your income a bit along with cutting your expenses. So, you can always do a side job that suits you.

If you’re that desperate to repay your credit cards or payday loans, you can work part-time during the weekends. This is a good strategy to earn extra if you’re single.

If you’re paid hourly, you can talk to your employer if you can work overtime. This way, you can simply add a few hours to your work schedule and add a significant amount.

Another way to earn more is to start a side hustle that you love doing. For example, you can do babysitting, especially if you have a baby. Doing so, you can just look after other children who play with your kid.

Related: The 7 Fundamentals of Building Wealth

Choose a suitable debt payoff strategy

You have to choose one or a combination of debt payoff strategies as per your financial situation. If you’re not comfortable managing on your own, you can opt for the professional debt payoff strategies.

When you’re paying back debt on a low income, you may not be able to repay the entire debt amount, especially if there are multiple debts with big amounts.

In the case of credit cards and payday loans, the debt amount increases because of comparatively high-interest rates. So, if you’re struggling to repay your payday loans and credit card debt, you can opt for payday loan debt settlement or credit card settlement. Doing so, you can get rid of the debts by paying less than what you owe. But, by choosing this option, your credit score will reduce a bit. However, you can add positive items to your credit reports once you’re out of debt completely.

If there are some debt accounts with small amounts, you can consolidate and pay them in full through single monthly payments.

Another way to clear debts is to target one debt at a time. You can make minimum payments on all your credit cards and pay a little extra on the smallest debt account or one with the highest rate of interest.

So, gather knowledge about these options and choose a unique strategy that’s best for your financial situation.

While you’re trying to pay off debts, start building an emergency fund if you don’t have one. Even if you have an emergency fund, try to save about 5-6 months’ worth of how much you need to meet your daily necessities in a month; the more the better. And make sure you use this fund only for emergency purposes like a sudden car repair or a medical emergency.

So, don’t waste time on thinking. Payback debts fast and start managing your financial life like a pro!

Related: How To Consolidate The Credit Card Debt – Including Some Less Conventional Methods.

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