How to Get Out of Debt Fast With Low Income?
Low Income? No Matter! I will show you how to handle debt with narrow cash flow.
With so many people nowadays living paycheck to paycheck, it can seem like an impossible task to dig yourself out of debt. It seems more and more like stress is building up every day over a little red number looming over our lives.
It’s hard to make a sizable dent in the moneys we owe. There are predatory loan sharks and tempting expenditures lurking around every corner, just waiting to suck you back into the red.
So, is there hope? Is there a realistic way I can turn this time around for myself? Can I pay off my debts, with my low income? Fortunately, for most people, the answer is yes.
By taking a good, sober look at your personal finances, and planning your course of action accordingly, even the most destitute of low-earners can turn their debt cycle into a savings pile!
To get you in on a few easy strategies for conquering debt on a dime; I’m going to discuss what debt is, how it happens to people, and how you can tackle it, even with low income! Hopefully, by the end, you’ll be fully equipped to form your own, special, debt-busting strategy for your specific financial needs!
I’ll also throw in a few tips about the different debt strategies, and a handy list of terms you can read some more about.
So where do we start? Well, the first question we need to answer is a little more obvious than some of you might have expected:
What is Debt?
Debt is a deferred payment, or series of payments, that is owed in the future. It occurs when an agreement to owe payment in the future is made between a debtor and a creditor. To put it simply, most people accrue debt when they agree to pay more than what they can afford.
In many ways, debt can be a good thing. It allows our society to function in complex ways that wouldn’t be possible without a system of credit. That being said, for many people struggling to make their living, going into debt can easily become an inescapable pitfall.
The key to making sense of your debt (and your finances as a whole) is understanding the functions of money, understanding the concept of a budget, and making concerted efforts to foster healthy financial habits. Without developing any of these tools for yourself, you will most likely fall victim to some form of debt cycle.
As mentioned earlier, necessary evils like mortgages and bank notes all depend on the concept of debt. Understanding the roles that these different types of debt play in society is a huge part of understanding how you can live with debt, and even become debt free! You will always have to manage your money responsibly, but you won’t always have to live with debt looming over your life!
How Does Debt Happen?
Obviously, we already know that debt happens when you agree to pay more than you have. But let’s take a more in-depth look at how people get into debt, and how debt becomes harder and harder to pay off.
The first thing to understand is interest. In simple terms, interest is payment made to a creditor by a debtor above what is owed. The purpose of interest is to give loan givers and creditors some financial stake in a loan.
When used properly, it allows things like credit and loan agencies to exist. Without interest, it is difficult to profit from a loan. Unfortunately, many loan givers and credit agents employ predatory interest policies.
The lending of money at interest has been classically referred to as usury. The practice has been frequently frowned upon throughout history precisely because of the debt that it can create. With compound interest especially, debt can quickly snowball into a mountain of red which you have no hope of ever scaling.
The strategy here is to rope you into an agreement that you will never be able to fulfill. Many companies even trade debt ownership between each other! This means that your debt itself is more valuable than you paying it back!
As you can imagine, traps like these can very easily lead an unscrupulous investor into financial ruin. Even outside of usury, retail companies and third party services are always trying to nab your attention and dollars away from each other and you! But now that we know what we’re up against, what is next?
Many of us are working on a tight budget. As I mentioned earlier, more people than ever are living paycheck to paycheck, and are building no savings.
If you’re struggling through a low-paying job, or have other frequent expenses that make you feel trapped, chances are you’re aware of or are already employing a few financial coping strategies. These are things you do in your day to day life to strategically tackle your financial situation.
Maybe you’re here as a meticulous planner looking for tips, or maybe you’re a complete newbie to proper financial planning. Either way, there are a few rules of thumb you should definitely be following. If you aren’t already, I’m more than confident that you’ll see some results after getting these simple steps in order! let’s get right into it and start with the Do’s:
- Put space between yourself and your money. Take out just as much cash as you need for the week and don’t overspend. Keep your credit card at home for emergencies. Open a savings account where money gets deposited on a regular basis.
- Identify things you Make a list of all your basic necessities; Food, water, rent, etc, and prioritize them. Leave out things you don’t need like entertainment and special occasions.
- Limit your expenses. Identify the areas where you spend more money than you need to. Pick out things like your morning coffee from the corner shop. You will surprise yourself at how much coin you can free up!
- Make and follow a BUDGET. This may seem like a fairly obvious one, but it is by far the most important step. Making a budget gives you the ability to know exactly how much you should be spending on any given expense, and also allows you to identify and tweak problem areas that may be giving you trouble. The main thing once you’ve made a budget is to follow it.
- Form new habits around your budget. It will be monumentally easier for you to follow your new budget if you form new habits around keeping it in check. Maybe instead of going through the drive-thru for your morning coffee, make one at home instead!
- Find new sources of income. This is the one everybody is dreading. You might have to pick up a few hours at a second job to start digging yourself out of your little hole. Fortunately, this is easier and more comfortable than some might think. Check out freelance opportunities and job listings to see if you might be able to capitalize on some of your skills. It doesn’t have to be a question of flipping burgers to keep the rent paid!
These steps form the basic outline for positive actions we can do to take control of our finances. Doing all of these things will ensure that you’re more in tune with your needs and expenses, and less in a position to spend impulsively.
So now that we’ve identified a positive action plan for financial stability, what kinds of things can we identify that are negative for our finances. Here we go with the Don’ts
- Don’t Over budget! This might seem counter intuitive to some. After all, the budget is the most important piece of our financial strategy! How am I supposed to know what my plan is if I don’t make a budget? Well, it isn’t really a question of not making a budget. The important part is to remember that budgets are boring, and can be time consuming, or prone to errors. The key is to keep your head in the game and not micromanage your budget down to every last drop of water. Don’t overdo it, and you’ll stay on top.
- Don’t starve yourself! For some people, it can be easy to see how much they are spending on food or clothes and simply tell themselves “I don’t need so much stuff!” And while they have the right mindset, it’s dangerous to go overboard. Nobody wants to follow a budget that leaves them wearing rags with their stomach grumbling!
- Don’t lie to yourself! Another key to budget success is honesty. You have to be honest about your income. You have to be honest about what is and isn’t a necessity. And you have to be honest when you see something you want outside the budget. Making little deals with yourself while staring at the impulse items in the checkout lane is not proper budgeting!
- Don’t ignore the signs! If your coffers keep running dry at the end of the month, something is up. Find the fire, and put it out! If your budget isn’t working for you, then something about it has to change. Chances are you’re either overlooking an expense, or being naughty with your spending! Take a look at your bank statements and break down your expenses month-to-month to see where the misstep is. Then you can amend your budget and see if you can’t make it work. Remember: budgeting is a process. If at first you don’t succeed, try, try again.
- Don’t get lazy! The human mind is wired to want things. And the world around you is specifically crafted to dig you into an inescapable hole. It takes hard work to resist all the temptations of day to day life. Even harder still is forging and shaping your life into a semblance of function. It’s going to be a constant struggle to rehabilitate your finances, and you’re going to need to put in your all every step along the way. You can’t stop budgeting once you get comfortable!
All of these things are negative aspects that you want to keep far away from your financial practices. Once you’ve embraced the habits you should be practicing, and successfully steered clear of all the ones you shouldn’t, you’ll be in a much healthier position to start tackling your debt. Starting with these basics is essential, since many people focus way too hard on the pit they’ve dug themselves into. You need to focus on the shovel in your hand.
Your debt is symptomatic of your financial dysfunction, so focusing on the basics is a surprisingly effective way to get a handle on what’s up for most people. Once you’ve gotten these habits nailed into your mind, you’ll find you don’t have to tread so hard to keep your head above water!
So now that we know where we stand, where do we go from here?
How do we Apply These Ideas to Debt Management?
So we’ve gone over some different basics for financial literacy and budgeting. We’ve given ourselves the tools to see where we stand financially, so let’s take a look around and see if we can’t translate some of these skills and start digging ourselves out!
The key to applying these financial ideas to debt specifically is to remember what debt is. Debt is money owed to a creditor or loan agent by a debtor. So what we have to ask ourselves is how did I get into debt in the first place? Maybe it was student loans, maybe it was a second mortgage to cover an ill-informed investment, maybe you just got a little carried away with your credit card. There are a million reasons why people go into debt.
The important factor is what kind of debt it is. When you’ve identified which of your debts is the most burdensome, you can prioritize your payment plans and start really cutting down on those red numbers.
The first thing to take a look at is your loans with interest. Remember that loans at interest require payment above what is owed, and this extra cost can add up fast. Especially in the case of compound interest, where the interest owed on the loan increases over time, we can see ourselves start to become extremely bogged down from a financial standpoint.
So how do we fix this?
- Put your debt between you and your money. Pay off your highest priority debts before you ever worry about your current expenses. This will ensure that you aren’t caught with your pants down and get dinged for another hefty sum!
- Identify which debts you need to pay off. Calculate the interest rates on your loans as well as any relevant policies and laws before trying to apply your budget. You won’t be able to prioritize your loans if you don’t understand them!
- Limit your repayment. It’s all well and good to get all your debts paid off at once, but what do you do when something unexpected happens? Don’t throw all of your money at your debt. You will need some to get through the month!
- Work your debt payments into your BUDGET. None of these calculations or considerations will make a single lick of difference if your budget and your debt don’t agree. You can’t separate debt management from budgeting any more than you can separate personal finances from budgeting, so don’t try!
- Correct your habits to correct your debt. Chances are, your debt is at least partially caused by some of the unhealthy spending habits we identified earlier. Just like anything else, you will need to identify the areas of your debt which come from your own unhealthy financial habits. Only once you do this can you have any hope of tackling your debt.
Humans are creatures of habit, and it can be difficult to break from even the most self-destructive mold you have built for yourself. You will need to say no to yourself. You will want to give in and forget about your budget. You will try and trick yourself into making mistakes. This is how the human mind is. The easiest way around it is to not get discouraged and to keep your attitude positive. This is where being honest with yourself and keeping an eye out for signs of failure really shine.
If you analyze and plan with clarity, that clarity will slowly dispel the quagmire of your debt. I know it’s not fun to live without all the great stuff we love to spend money on. You just need to keep your eye on the prize and maybe someday you’ll be able to work those luxuries into your budget responsibly!
Remember that the main focus is changing your habits and attitude. You can budget ’till you’re blue in the face, but it won’t get you one iota closer to being in the black if you don’t apply your strategies!
Once you’ve successfully tailored your mindset to a low-income attitude, you’ll find it relatively easy to apply these steps. It’s just a question of getting into the habit. So how can we help ourselves form these habits? How can we efficiently approach the strategies we’ve outlined without shooting ourselves in the foot?
Pitfalls and Plateaus
We’ve already gone over the kinds of things we should try NOT to do. There are many ways in which our financial strategies can get the best of us, but some stumbles aren’t so sinister. Sometimes a bad strategy can set you painfully back to square one, which can be stressful. But sometimes, the mistakes you make won’t be so obvious.
Maybe you haven’t noticed your debt hasn’t been shrinking like you had hoped. Maybe you fall into a routine and your debt cycle stagnates. Maybe you started paying less attention to your budget and you start getting surprised by odd expenses.
The reality is that you need to stay on top of your strategy. I cautioned earlier about letting your habits slip, but it’s not always so simple as a self-reminder. Sometimes we can get comfortable in a routine that we think is helping us improve, but really all we’re doing is finding a comfortable shallow spot to wade in.
Human beings are anxious creatures, some more than others, and it’s in our nature to find the path of least resistance. For people trying to manage debt, this can mean that your mind subconsciously finds a kind of easy-middle-ground between the anxiety of debt and the hard-work of debt management.
You aren’t spending irresponsibly, but you haven’t reviewed your budget in a couple months either. You aren’t bankrupting yourself paying back your loans, but you aren’t really looking at the exact payments either. Your debt isn’t getting much worse, but your lifestyle hasn’t really changed.
That’s the real kicker here. The ultimate goal is change. Change is hard, it’s not in our nature, and a lot of people who think that there’s some kind of easy-mode, one-time solution to their debt issues are going to be sorely disappointed.
Debt is a symptom of dysfunction, and dysfunction is not a boo-boo that can be bandaged. It must be nursed back into healthy habits with genuine love and care. So, don’t let yourself get comfortable on the plateau of debt management dilettantism.
When you put in your all every day to make a difference, you’ll be able to stave off stagnant pitfalls such as these and really concentrate on bringing yourself some financial freedom!
But what if there are more factors outside of your control? What if you’re not the only variable in this equation?
What about the rest of my family?
Many of you reading this are probably part of a nice, healthy family. And good for you! But having kids can be a budget killer for those parents who have trouble saying no. Or maybe your teenager gets away with sneaking the credit card every once and a while to go to the mall.
Even just emergent costs like medical expenses that children can cause will quickly erode your budgeting capability. That is, if you don’t get them in on our little debt-busting scheme! There’s no way your children and the rest of the family in general can’t be just as on top of your expenses as you are.
I know it can be kind of stressful for some parents to go over their financial situation with their children, but the benefits of having your family in the loop on this far outweigh such discomforts, I assure you.
The first thing to make sure of is that your kids have some idea of your financial situation. They don’t have to think the ship is sinking, but they can’t think you’re rich either. If your kids don’t consider their expenses before you provide for them, they won’t learn how to properly contextualize their money spending. Or your spending on them.
If they have a certain degree of autonomy, it’s good to get them into the budget as well. Sit down with them and show them what you have to work with. Show them the parts of the budget which affect them, and help them strategize how they can live within that budget and still be kids!
Of course your spouse or partner will be a less pressing issue, as they will (hopefully!) be with you every step of the way on this, but maybe you’re a single parent, or your spouse isn’t able to work. There are still ways you can help them facilitate your budget along with your kids:
- Notes on the fridge and around the house. Nobody is going to remember to keep the money on their mind if you let them forget. Remember: out of sight; out of mind. Don’t be afraid to litter little post-it notes around the house as a friendly reminder to keep it frugal across the board!
- Meal plans. You don’t have to eat the same series of dishes every week, but you definitely have to plan your meals. This is a really good way to get your family used to the flow of frugality. If the food is good and you teach them how to keep it delicious on a dime, those principles will make their way into your budget.
- Planned outings. Just like with meals. It doesn’t have to be something repetitive or boring like ‘board game night’. As long as you all get together to enjoy a low-expense activity with each other. This will get your family used to spending time and effort together on saving money and having a good time.
- Chores and allowance. If your kids are just given money, they probably won’t think too hard about how they spend it. This will extrapolate into their financial psyche and cause your budget to derail in a variety of ways. That which is given, has no value. Make your kids work for their allowance! Children are a great source of cheap labor to free up your time and focus on your budget. You’ll even teach them fiscal responsibility at the same time!
Remember at the beginning when we took a look at what debt actually is, and familiarized ourselves with how it’s so good at dragging us down? You’ll need to do the same for anybody else existing within your financial sphere. Budgeting and personal finance is a group effort for families, and if you’re not on the same page as the rest of your team, your plays are more than likely going to fall flat.
Especially with kids, expect them to be bored or disinterested by stuff like budgeting. After all, they’re just kids, right? How can we expect them to have the same drive towards fiscal responsibility that we do? It isn’t necessary for your whole family to feel the whole gravity of a tight budget; just as long as they’re informed enough to fight on your side when the time comes to really buckle down.
Is there anything else I should know?
That’s a lot of information to digest all at once. Nobody expects you to become a master of money magic overnight, and there’s definitely enough new information constantly filing through the chaotic world of personal finance to keep even the most frugal of strapping strategizers occupied.
As long as you’ve got these basics as a foundation, the building blocks of debt management will fall perfectly into place. As I said before, you will gain a better understanding of where you can go from here as you progress.
That being said there are a number of little tips I can let you in on here and now to give you a little boost. Some of the idea’s we’ve outlined could be explored a little more in depth, so let’s start with our budget:
- There are many different types of budget: Master budget, operating budget, static budget, &c. Do some research on budgeting and make decisions about what is right for you.
- For personal finance, many people use what’s called a zero sum budget. Simply put, a zero sum budget is a budget where the income minus the outflow equals zero. Have an extra hundred left over? Find a place for it.
- The zero sum budget forces you to be more disciplined with your money, and doesn’t leave sums in odd places when they could be used for better things.
- There are some disadvantages, however. It can be time consuming to plan every month out with zero-based budgets. As always, keep yourself informed as to what to expect.
And what about the other stuff? Is there anything specific I can continue improving with my meal plans? How about chores? Most of these little strategic minutiae could flesh out entire articles of their own, so I won’t go into too much detail for you here. The general idea is to realize where you have room for improvement, and where you can work out little strategies to stay progressive in your debt-busting schemes.
There are a few more key words and tips I want to acquaint you with before we move on:
- Focus your meal plans. This can be a big one for most people, since managing your food expenses is such a huge part of budgeting to begin with. Remember that in order to rehabilitate your financial habits, you have to make sure you do it comfortably. For meal plans, this means staying away from set-in-stone weekly schedules and repetitive ingredients
- Learn the basic components of a simple dish, and experiment. Focus on a staple, such as rice, or pasta; and a protein, such as chicken, or pork.
- Always check and compare food prices and deals between stores if you can.
- Delegate chores For those of us that have kids, delegation of chores is key. Remember that a good system of chores reinforces responsible behavior and time management. Keeping this in mind when you structure the tasks you give your children will help the habits stick.
- Some chores can teach marketable skills, such as landscaping
- The payment of an allowance goes hand-in-hand with chore expectations. Give them the option to do more work for more money. The attitude that this build will translate to their budget-keeping capability
- Plan your outings accordingly. The people in your family probably all have their own lives and interests, so it’s not a good idea to force everybody to spend time together, but there are a few ways in which you can bring an essence of unity to your family. Such an essence is essential to keeping a budget with a low-income family:
- The easiest plan is to identify cheap activities such as hiking, going to the library (have you been to a library lately?), and staying up-to-date on any events going on in your town
- Something people often overlook is volunteer work. Many people either end up doing this for school, work, or personal interest anyway. If you and your family can engage and enjoy volunteering, it can provide invaluable advantages for your budget attitudes and strategies.
These points are essentially to give you an idea of how to think about getting better. There are plenty of simple steps we can all do to get the basis of a healthy budget flowing, but in order to keep your financial situation getting healthier, you must change how you think. And how you think about how you think.
Think about it.
Some further reading
So at this point, you’ve probably got some questions, and hopefully you’re well on your way to answering some others. Since there’s only so much info I want to stuff into this strategic outline, I think it’s a good idea to throw out some key word’s I’ve touched on or related to.
These are things which other people have written about extensively which will supplement your debt strategy very handily. Take a second sometime soon to google through the list while your ideas are percolating over your budget techniques.
Some of these are here to help you remember how to stay on task, and some are just well-explored ideas to give you a good look at some of your options for augmenting your financial repertoire:
- SMART This is a good common-sense acronym for goal management. There’s plenty of info about it online.
- Zero-Based or Zero-Sum I mentioned this before, but it’s a good idea to look into the idea yourself to get a more in-depth idea of what it can do for you as a strategy.
- Income Classifications. Understanding who is classified as ‘low-income’, which factors determine this classification, and any options available for people of low income is essential.
- Motivational articles and resources. Even outside of the financial sphere, general motivational articles can give you good insight on how to keep your self-improvement flourishing. I’ve touched on some general motivational principals here, but finding somebody who works for you will make a world of difference.
- Debt Prioritization. This technique is surprisingly versatile and popular amongst financial advice givers. Doing some more reading on the various techniques involved can’t hurt.
- Types of As I mentioned before, understanding how your debt affects you and your money is essential. Learning what you’re dealing with when you borrow money gives you a foothold on understanding your debt.
Since I didn’t want to inundate you with information on everything at once, it will do you well to set aside some time to look into these terms for yourself. Always look for ways to expand your knowledge.
So let’s review:
We’ve gone through the whole debt cycle now, from definitions to deliverance. Hopefully I’ve answered some of your questions, and you’re feeling confident about answering others for yourself. Let’s consolidate some of this information to leave you with a clearer idea in your head about what you’re going to do with your financial situation.
Always keep in mind what debt is and how it happens. This is the basis of understanding debt’s place in the greater financial scheme of things.
Relate your understanding of debt to how it affects your life, specifically. It’s all well and good to understand debt, but it needs to relate back to you.
You need to act strategically to conquer debt. Form an action plan based on the principles we talked about. Lower expenses, prioritize debt, make a budget, and form the habits to stick to it.
Avoid pitfalls. Anything that whittles down your confidence or motivation and leads you back into strategic laziness and debt. Be honest with yourself, don’t over-budget your life.
Make the effort to Change your habits and the habits of those in your family to help make your debt management effective and long-lasting.
Keep moving forward. Always look for ways in which you can increase your knowledge about your financial situation. A little knowledge never hurt anybody, and the more you have, the more you’ll be prepared for.
Even if your debt is more of an unshakable annoyance than a looming cloud, it does us all good to be financially independent. Those of us who are at the lower end of the income spectrum are prone to form comfort cycles that can pull us back into debt.
Some of us feel like we’re barely keeping our heads above water, and other’s feel like they’re constantly drowning. Give yourself a leg up and employ these simple strategies to give yourself a second wind.
Debt isn’t forever, but the advantages you afford yourself by building up the habits and good strategies now will help you and your family throughout your life.Updated on: November 21, 2018