Debt can slow down your way to financial freedom, especially if you only have a low income to pay off while making ends meet. While you juggle your bills, save for the rainy days, and have cash on hand for your needs, removing debt from your obligations can eat a big chunk of your paycheck.
With all these expenses, is it even possible to eliminate debt with little salary? This article will guide you on how to pay off debt with low income and achieve a debt-free lifestyle.
Why do People go into debt?
One way or another, a person incurs debt for different reasons. It can be due to an emergency need, enrollment, mortgage, or credit card purchases.
While some can pay off their debt immediately and on time, others begin to dig themselves into debt because of poor financial choices.
Living Beyond Your Means
If you choose a demanding lifestyle with high expenses, you’ll likely be drowned in debt just trying to keep up with it. Buying luxury bags and high-end gadgets can leave you in debt if you can’t pay for them and rely on credit cards to shoulder it.
Living Without a Budget
Spending without a budget in mind can let you forget your limitations in your spending, leaving you more prone to impulse buying and spending on unnecessary items.
Buying Cars with High-Interest Loans
Getting a car with low down payments has higher chances of high-interest rates that you need to pay for years. Before buying a car, shop for auto loan lenders who can provide the lowest rates.
Paying Late Fees and Penalties
Late fees and penalties, if combined altogether, may sum to a significant amount that you could have used for other purposes. Always aim to pay on time to avoid paying hefty charges.
Unexpected Medical Expenses
Medical expenses can wipe off your entire savings and make you resort to loans to cover medications, surgeries, and treatment. Having health insurance is an advantage for sudden medical conditions.
Unforeseen expenses, such as emergency bills, can also clear your bank account. That is why it is crucial to build an emergency fund as the fallback for circumstances like these.
Lifestyle inflation is the increase in one’s expenses as income increases. With bigger paychecks, one tends to increase their way of living, such as buying more expensive things, getting a car, or frequent vacations.
Borrowing to Invest
People lured into investments without enough funds tend to borrow money from lenders or banks. However, if your investment does not work, then you catch the burden of paying back the money, along with the interest rates.
Student loans are solutions for students to finish schooling with the promise of paying them off in the future once they are capable. While it helps them, hefty student loans also leave students in outstanding debt even before they land a job, slowing down their financial success.
While getting a divorce may solve your marital problems, people on this path often experience financial woes. Aside from spending resources to pay for a lawyer, divorce can leave you financially incapable, mainly if you rely on your spouse for your expenses.
Additionally, if you and your spouse had a joint credit card or loans in the bank, you still have the responsibility to pay any balances incurred in the account.
How can I pay off debt with a low income?
Is it possible to know how to pay off debt fast with low income? The answer is yes! You can slowly eliminate this financial burden as long as you have a job or have a source of income.
Examine Your Expenses
Take a look at where your money goes. Does your paycheck go directly to your auto loan? Do you spend more money on shopping?
Come Up with a Budget
Come up with a monthly budget and stick to it. Determine the proper budget for your food, transportation, daily allowances, and others so the money allotted for your debt will not get affected.
Once you see that you are about to go beyond that budget, you need to cut back on other expenses or restrict yourself from going overboard.
Increase Your Income
How to pay off college debt fast even with little salary? Aside from relying on your monthly paycheck to pay off your loan, try adding other income streams, such as opening a small online business or getting into freelancing.
The income you get from these side hustles can help you pay off your debt.
Eliminate Unnecessary Expenses
Evaluate your current spending and check if you can eliminate unnecessary expenses. You may want to hold off on your streaming subscription and allot the budget to your debt.
You can also stop buying daily coffee and just brew your own cup. Try to assess your expenses, and you’ll be surprised at how much you can save if you cut off redundant purchases in your life.
Find Ways to Save on Recurring Expenses
Recurring expenses include monthly subscriptions, rent, and monthly dues. Look for ways to save on these. If you rent an apartment with high rental costs, you may look for a smaller unit with lesser rent. You can also want to downgrade subscription plans.
Often, these recurring expenses are automatically deducted from your account. Double-check these expenses regularly and see if they still deduct the amount you have agreed on.
Prioritize Your Payments
If you are thinking of ways on how to pay off debt faster, then you should make payments a priority.
Always put your payments on top of your list before your wants to save you from possible high-interest rates and late charges.
Explore Debt Relief Options
One of the most significant benefits of using a personal loan to pay off your credit cards is the lower interest rates. Lower interest rates allow you to pay less interest and pay off your debt in less time.
Using a personal loan to pay off high-interest debt, such as credit card debt, allows you to combine multiple payments into a single payment with a lower interest rate.
Debt consolidation gathers all your loans in one account and pays for it on an installment basis with lower rates.
Credit counseling service:
Credit counseling is a consultation with a credit counselor who recommends solutions for your debts, most commonly debt settlement.
Debt settlement allows you to get a debt relief company that will serve as the middleman negotiating with your lender about the money you owe them.
Your debt settlement company may advise you to purposefully miss payments to your lenders while they push for an agreement. However, this can be a tricky and dangerous move.
Filing for bankruptcy is a common way to have a clean start when you are already drowning in debt.
You can choose between existing U.S bankruptcy laws. Chapter 7 bankruptcy allows you to pay off creditors with all the remaining assets you have, while Chapter 13 bankruptcy law gives you an option to set up a plan to pay off your debt without touching your assets.
If you want to pursue this step, seek the help of a personal bankruptcy lawyer to know how it works. Bankruptcy is usually only pursued as a last resort.
Stop borrowing money!
When you borrow money, you add more debt into your life, and it goes on a cycle. Refrain from borrowing money from lenders and banks.
If you need cash, you can add more income streams or borrow from your family or friends who understand your situation.
Utilize the debt snowball or debt avalanche method.
The debt snowball is a strategy that pays off the loan from smallest to highest, with the purpose of gaining momentum as you eliminate each debt.
This method prioritizes the loan with the highest interest rates. It allows you to save more on interest rates and have room to pay off loans with lower interest.
Negotiate with your creditors for better rates.
If you can’t handle high loan rates, you can talk to your creditor and tell them about your financial struggle. They can offer lower rates for borrowers who have good payment standing.
Get a side hustle.
People no longer rely on their monthly paychecks to cover their expenses. A side hustle is an excellent solution to adding more cash on hand.
You can explore options such as providing freelance work for services you excel in or starting an online business.
Simplify your lifestyle.
Live beyond what you can afford. Try to ditch lifestyle activities that only add to your expenses. You can limit your yearly travel abroad, cut back on buying expensive clothing and branded items, or just simply cook at home instead of dining out.
Sell things you don’t need.
You can find money from your old stuff. Aside from holding a garage sale in your neighborhood, you can look for online selling platforms for secondhand items and put on sale your old clothes, household items, and other unnecessary stuff sitting at your home that others may find helpful.
Take advantage of employer benefits.
Tenured employees can enjoy benefits from their employers, including borrowing money or advancing their retirement fund.
Is it possible to consolidate your debt with a low income?
Debt consolidation is a debt relief option that gathers all your existing debt and makes it into one debt, requiring you to pay monthly for a period.
This method allows you to land lower rates, giving you more freedom to manage your loans.
Despite low income, you can still have debt consolidation as long you can provide the capacity to pay. Lenders can work out an interest rate suitable for your financial status.
Should you use credit cards to help pay off debt?
Credit cards provide a temporary loan that you have to pay in a short period. Using credit cards to pay off loans is not recommendable, especially if you do not have enough money to pay for it monthly.
Credit cards may even put you in more financial trouble because of the interest rates and charges that automatically add to your debt.
Can a personal loan help you pay off debt with a low income?
Yes, a personal loan is one of the most common ways to eliminate your multiple loans. Personal loans can be used in any way the borrower intends to—whether you want to have a travel fund for a vacation or you need to pay off your debt once. Moreover, you do not need to put your assets as collateral if you get an unsecured loan.
How does it feel to be debt free?
Eliminating the debts in your life is a fulfilling and rewarding experience.
You stop having to worry about money.
Without a loan deadline waiting for you, you no longer think of where to get money to pay off your debt.
You enjoy a sense of accomplishment.
Being debt-free allows you to feel successful in overcoming financial problems.
You learn that financial success requires self-discipline.
As you achieve financial freedom, you discover that it all comes with discipline and responsibility.
Your spending is more intentional.
You no longer spend money out of an impulsive decision and develop mindfulness in every expense you make.
You feel a rush of self-confidence.
Having no debt gives you a sense of pride and confidence in responsibly handling finances.
You celebrate milestones when you pay off loans faster than expected.
It is a great feeling when you know you can pay on or before the deadline, saving you a lot from high interest rates and stress.
Your stress level decreases, and your overall health improves.
Once you remove debt from your problems, you no longer feel anxious and stressed out and focus on improving your well-being.
Seek financial help with our debt relief options
Beneficial Funding provides the suitable loan options for any type of debt. Whether you have multiple debts on your credit card or other loans such as mortgage and home loans, we provide a fast and easy solution to take them down one by one.
You can talk to one of our financial advisors for an initial assessment of your financial situation and explain our different debt relief plans that suit your capacity.
Did you receive a Pre-Approval code in the mail? Visit us online and enter your code to start the application process.