How to Become Debt-Free on a Fixed Income

We hear it a lot. People say, “Well, if I made that much money, then I would be debt-free already.” And it’s true—having a larger income means you have more money to help you get out of debt. But that doesn’t mean you can’t become debt-free on a fixed income.

Will it take work? Absolutely. Will it happen overnight? Probably not. But real people become debt-free every single day, and you can too.

What Is a Fixed Income? 

A fixed income is money you receive regularly—like Social Security, a pension or disability benefits—that doesn’t typically increase through raises, bonuses or extra hours.

But you know what’s funny? Most of the time, fixed income is just a fancy way of saying low income. If you had a fixed income at $100,000 a month, you’d be okay. The real issue is having too little income to comfortably pay your bills, cover everyday expenses, and get out of debt.

That's why getting out of debt on a fixed income starts with creating margin wherever you can.

How Can I Make More Money on a Fixed Income?

If you’re trying to get your income up, the best thing to do is work. If you’re trying to live on $1,100 a month from Social Security and trying to pay off $50,000 in debt—math says it’s not going to happen anytime soon. You need a bigger shovel to dig your way out of that debt. (Psst . . . the shovel is your income.) The bigger your shovel, the quicker you can get out of debt.

There aren’t any magic beans to make it happen faster—but the good news is, it’s all up to you. You’re in control and have the power to change things! That means you’ve got to do whatever you can to make extra cash or free up more money in the budget. You can sell stuff, start a side hustle, and even look at your lifestyle for ways you can cut back and spend less.

If you’re retired, consider tutoring, pet sitting or selling items you no longer need on Facebook Marketplace. If you have a skill from your working years—like accounting or a trade—try part-time work to bring in extra income without the demands of a full-time job.

And if you’re on disability, look into how much you're allowed to earn while keeping your benefits. You may have more flexibility than you think.

The point is, “fixed” doesn’t have to mean stuck.

What Should I Prioritize First?

If your income barely covers the basics, protect your Four Walls—food, utilities, shelter and transportation—before you pay a dime on debt. Everything else waits.

The Four Walls

If paying debt means you can't buy groceries or keep the lights on, you've got your priorities backward. When money is tight, your priorities should always be:

• Food
• Utilities
• Shelter
• Transportation

Feed your family. Keep the lights and water on. Pay your rent or mortgage. Keep enough gas in the car to get where you need to go, and pay your auto insurance. Once those four things are covered, then you can turn your attention to debt.

If you’re not retired yet, whatever you do, don't cash out your retirement savings to pay off debt—even if it feels like a crisis. Early withdrawals often come with taxes and penalties that leave you worse off in the long run. Protect your future while you work the plan. And if you are retired, talk with a financial advisor about whether dipping into your nest egg is a good idea for your debt situation.

How Do I Get Out of Debt on a Fixed Income?

The best way to get out of debt on a fixed income is to make a zero-based budget, save a $1,000 starter emergency fund, and use the debt snowball to pay off your debts from smallest to largest.

Jenn, a member of the Ramsey Baby Steps Community Facebook group, knows what it's like to face debt on a fixed income. After a line-of-duty injury ended her career as a paramedic, she still found a way to become debt-free.

"I was disabled in a line-of-duty injury as a paramedic. Medically disqualified from my job, on a fixed income (drastically reduced), I racked up over $11,000 in debt. Then there was an advertisement in my church bulletin for FPU [Financial Peace University], Ramsey's personal finance course. I took it, even though I was on crutches. It totally changed my mindset about money. I am proud that I made it [becoming debt-free] happen despite overwhelming adversity."

Here’s how you can do it, too.

1. Make a budget.

Whether you make $200,000 or $20,000, you need a budget. The best way to do that is with a zero-based budget.

EveryDollar—the budgeting app built by Ramsey to help you find margin—makes it easy. List your monthly income and expenses, then budget all the way down to zero. That’s zero as in making sure you’re giving a job to every dollar you bring in—not zero as in zero dollars in your bank account. Then track all your transactions in the app throughout the month to make sure you're sticking to your plan.

2. Save up an emergency fund.

We call this Baby Step 1—meaning it comes first before you even start paying off your debt. Go ahead and save up a cool $1,000 as fast as you can.

We know, on a fixed income, it’s going to take a little bit longer, and that’s a-okay. Just be sure you make saving that $1,000 emergency fund a priority. This is the buffer you’ll have between yourself and the twists and turns of life while you’re paying off debt.

3. Figure out how much debt you have.

Do you know how many people don’t even know how much debt they have? Too many. Don’t be that person. It’s time for you to look the truth in the eye and see exactly how much debt you’ve got to your name.

Once you know what you’re dealing with, you can start chipping away at it. Try our debt calculator tool to help you figure out how much you owe and how fast you can pay it off.

4. Use the debt snowball to pay off your debt.

Congrats, you made it to Baby Step 2! The debt snowball has you pay off your debts from smallest balance to largest, building momentum with every debt you eliminate. Here's how it works:

Step 1: List your debts from smallest to largest (don’t worry about the interest rate).

Step 2: Make minimum payments on every debt except the smallest.

Step 3: Put every extra dollar toward the smallest debt to get it out of your life.

Step 4: Roll that payment into the next debt and repeat until you're debt-free. Boom, done!

Some people recommend a different approach called the debt avalanche, where you pay off the debt with the highest interest rate first instead of the smallest balance. And if you look at this whole debt thing as just a numbers game, then yeah, it’s easy to see why someone would want to pay off debt that way. But the truth is, there’s way more going on than math here—this is a behavior and mindset thing.

If you spend months attacking a giant $10,000 credit card balance before seeing any real progress, it's easy to lose motivation. But when you knock out a $175 medical bill, you get a quick win that builds confidence and momentum. Every time you scratch a debt off your list, you’re going to feel empowered, like you can take on anything—because you can!

Debt-Free Date Calculator

Why Should I Become Debt-Free?

Debt keeps you paying for the past when you could be building your future. People often find themselves in debt as a last resort after a bucket of bad decisions and tough breaks. And then, they just get used to making the payments. They start believing debt is just a part of life and they can’t see a way out.

Don’t buy into the lie that you have no choice but to rely on debt as your life raft in the rocky waters of life. Nope! You can become debt-free. Will it be easy? No, it sure won’t. But anything that’s worth doing is hardly ever easy.

When you become debt-free, you can live free. You won’t have to pay for things you bought in the past, and you can quit robbing from your future. You can put the money you’re making—even on a fixed income—to work on your goals!