How to Pay Off Debt Fast with Low Income

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Key takeaways

Everyone can be debt-free. Start by creating a detailed budget, diligently tracking expenses, and finding ways to cut back.
Consider the snowball or avalanche methods to systematically pay off debts.
Debt relief is always an option. Look into debt consolidation, debt settlement, or even bankruptcy as a last resort.

No one wants to be in debt, but it’s a situation many people find themselves in.

Americans, on average, owe $6,455 in credit card debt, according to TransUnion. And 40% have been in credit card debt for over 5 years. It’s time to get out!

Even on a low income, you can become debt-free. All you need to do is take the proper strategic steps.

Let’s go over how you can turn your debt-free dream into a reality.

How to pay off debt fast with a low income

You’re not alone if you’re trying to learn how to pay off $20,000 in credit card debt. Anyone who has had a large amount of debt knows that it takes persistence, discipline, and sometimes professional help. Here’s how you can get out of debt, no matter how big your bill is.

1. Stop taking on new debt

The first and most crucial step in managing debt is to stop accruing new debt. Avoid using your credit card. Do not open new credit accounts. Resist the temptation to take out loans for non-essential items. That includes buying things you don’t absolutely need through buy now, pay later apps.

Being disciplined in your spending can be challenging, especially if your income only covers your monthly expenses. While tough, you need to stop adding to your debt load. It’s time now to focus on paying off what you owe.

Repaying what you owe is one of the best things you can do for your credit. What will happen to your credit score if you do not manage your debt wisely? It can drop significantly, which will make it harder for you to get loans with favorable terms or credit cards in the future.

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2. Create a budget

Budgeting, cutting expenses, and increasing income are key steps in figuring out how to get out of credit card debt quickly. A budget is a financial roadmap that helps ensure you spend within your means. Begin by listing your income. Include any side jobs, alimony, child support, or government benefits.

Next, write down your essential expenses. These are rent or mortgage payments, utilities, groceries, transportation, etc. If the costs vary month to month, round up so that you are not short.

Once you have these numbers, subtract your total expenses from your total income. The remaining balance is the amount available for paying off your debt. Put this money aside at the beginning of the month so that you’re not tempted to spend it.

Creating a budget is not exactly fun, but it’s an essential step. It helps you make sure your expenses are covered and figure out what you pay your creditors.

Make sure you give yourself a little bit of fun money to spend however you like. Not much, only a $5 treat, so as not to dent your budget.

3. Know how much you owe

Now you’re ready to tackle your debt, but you need a clear understanding of how much you owe.

Gather all your financial statements. That means credit card bills, loan statements, medical bills, and any other documents related to your debts. Make a list. Write down the creditor, total amount owed, interest rates, monthly minimum payments, late fees, and any other penalties. Listing out your debts can help you find the best payoff strategy for your situation.

4. Earn extra money

Learning how to make extra money to pay off debt can give you some breathing room. There are plenty of ways these days to increase your income, thanks to the gig economy. Platforms like Uber, Lyft, DoorDash, TaskRabbit, and Rover have made it easier than ever to find gig work that fits your lifestyle and skills.

If you prefer a more traditional approach, look for part-time jobs. Many retailers, restaurants, and businesses hire part-time workers, especially during busy seasons.

Alternatively, consider selling used items around your home. An online garage sale can be a quick way to generate cash. Facebook Marketplace, eBay, and Craigslist make it easy to reach potential buyers.

Make sure to put all the extra money you earn towards paying off your debt. The more you can pay towards your bills each month, the faster you’ll be debt-free.

5. Cut your spending

Look for ways to reduce your expenses. Consider cutting cable or switching to a more affordable streaming service. Reduce utility bills by being more energy-efficient. Turn off lights when not in use, unplug electronics, and lower your thermostat.

Switch to a less expensive phone plan or a family plan. Perhaps you can bundle in internet for more savings. Cooking at home instead of eating out is often healthier and significantly cheaper. Cancel your gym membership and take on running, hiking, or at-home workout routines.

The possibilities for reducing expenses are endless. Every dollar saved is a dollar that can be redirected towards reducing your debt.

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6. Try the snowball or avalanche methods

The two tried-and-true debt payoff strategies are the snowball method and the avalanche method. With the snowball method, you pay off your smallest debt first while making minimum payments on your other debts. Once the smallest is paid off, you focus on the next smallest. This method works very well since the quick wins motivate you to keep going.

The avalanche method, on the other hand, concentrates on paying off debts with the highest interest rates first, while making minimum payments on all the others. By targeting these high-interest debts, you minimize the amount of interest you pay over time. It’s good if you’re disciplined and motivated by saving money.

The best choice depends on your behavior. If you thrive on quick wins and need to see progress, the snowball method is a better fit. If you’re more focused on maximizing savings, the avalanche method will do that for you. Whichever method you choose, the key is to remain committed and consistent in your debt repayment efforts.

7. Negotiate with creditors

If high interest rates make it impossible for you to keep up with your bills, you may want to call your creditors. Knowing how to negotiate credit card debt on your own could save you hundreds or even thousands of dollars.

You may be able to secure lower interest rates, extended payment periods, or even a reduction in the total amount owed. Many creditors are willing to negotiate, especially if they believe it will increase their chances of getting paid, and you have a history of making timely payments.

When you call, it’s important to be polite, respectful, and honest about your financial situation. Explain your circumstances clearly. Provide any relevant information that demonstrates your commitment to repaying your debt. It may be helpful to have a proposed payment plan ready to show that you are serious about resolving your debt.

Creditors may be able to offer you a hardship plan, forbearance, or a payment plan. Many companies have options available to make your payments more manageable.

8. Explore debt relief

If your debt situation is particularly dire and no matter what you do, it doesn’t seem to make a difference, consider exploring debt relief options. Debt relief is anything that helps to reduce your debt, making paying it off more manageable. Options include:

Debt consolidation
Credit counseling
Debt settlement
Bankruptcy

Debt consolidation is when you take out a personal loan and use the funds to pay off multiple high-interest debts. You now have a single monthly bill at a lower interest rate. If you’re wondering, does debt consolidation hurt your credit? The answer depends on how you manage the new loan.

Credit counselors at nonprofit agencies provide guidance and education on managing finances and budgeting. They can create a debt management plan (DMP), which is a structured repayment plan. They will negotiate with creditors to waive fees or secure a lower interest rate, making repayment easier.

Debt settlement is when you or a debt settlement company negotiates with creditors to reduce the total amount owed. You can potentially pay up to 50% less, but you will have to pay fees to the debt settlement company, may owe the IRS taxes, and it will hurt your credit score.

Bankruptcy can offer a fresh start by discharging certain debts. There is no set number for how much debt do you need to file for bankruptcy, but most experts recommend at least $10,000. The problem is that it will severely hurt your credit score. It stays on your credit report for seven to ten years, impacting your finances during this time.

Exploring debt relief can be a critical step towards regaining financial stability when traditional methods fail. Carefully evaluate your options and how each one impacts your credit. Do your research and make sure you ask questions like, Is National Debt Relief legit to ensure you only work with reputable companies.

How to get out of debt with no money and bad credit

Getting out of debt with no money and bad credit can feel impossible, but it’s not. Start by exploring debt relief programs. A reputable nonprofit credit counseling agency can walk you through your options and enroll you in a debt management plan. DMPs can help you consolidate your debt, no matter your credit score. Other debt consolidation options require good to excellent credit. A DMP is different.

Credit counselors will negotiate with creditors on your behalf. They aim to lower the interest rate or waive fees to make your monthly payments affordable. You will have to pay the agency a fee for their service, but the fee can be waived or lowered depending on your income.

If you’ve taken out high-interest payday loans, a DMP can help with payday loan consolidation and stop the cycle of borrowing.

While a DMP has fees, credit counselors offer financial education for free. They can help you learn how to better manage your finances so you don’t have to rely on new cash advance apps and can build credit.

Frequently asked questions

1. How to get out of debt when you are broke?

You have to create a budget and stop taking on debt. Next, try the snowball method, where you pay down debts starting with the smallest amount. If you want extra help, visit a credit counselor who can enroll you in a debt management program and give you financial tips.

2. How can you get out of debt when you live paycheck to paycheck?

You need to figure out how to spend less than you’re making. Start by evaluating your spending by wants vs needs. Then cut anything you don’t need and put that money towards your debts. Find a side job that you can fit into your schedule and put all of your earnings toward paying off debt. Avoid paycheck advance apps as they will only make your situation worse.

3. How can you be debt-free in 6 months?

To pay off debt in six months, you need to change your behavior. Cut any discretionary spending, take on a side job, and put the money towards debt payments. Pay more than the minimum each month; it’s the only way to get ahead of compounding interest. Employ the snowball method since the quick wins will keep you going.

4. How can you catch up on bills with no money?

Look for assistance from local charities, non-profits, or government programs that can help cover essential expenses. Take on another job or sell items to find extra cash. Assess your situation and prioritize your spending so that you can cover your bills.

5. What can you do to avoid unnecessary debt?

To avoid unnecessary debt, do not take out a loan or cash advance that you do not need. Always avoid payday loans. Do not buy anything on credit that you cannot pay for with cash. Pay your credit card bill in full by the due date every month. Avoiding debt is all about spending within your means. If you do not have the cash for it in hand, do not buy it.

Bottom line

Debt can feel like a trap, especially if you have a low income and not much money to spare. However, it’s important to remember that getting out of debt is possible, even in challenging circumstances. The best thing you can do is commit to paying down debts. Find the money and then gradually eliminate your bills one by one.

Start with credit counseling for free advice or try the snowball method. It is one of the most effective ways to get out of debt. Explore other debt relief programs like negotiating with creditors, consolidation, or even bankruptcy as a last resort.

Once you have a handle on your debt, start building an emergency savings fund. Even $5 a week can help prevent future borrowing.

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Elise Banham

Elise Banham is a financial writer at Moneyfor, specializing in credit building, budgeting, and personal loans. She joined the team in 2020 after writing for outlets including The Seattle Times, MarketWatch, and Bankrate. Earlier in her career, she worked as a content strategist for a San Francisco-based fintech startup.

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How to Get Out of Debt on a Low Income

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