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How to Get Out of Debt on a Low Income

Money’s tight right now. A lot of us are feeling it. And if your income’s on the lower end, you might be feeling it more than ever.

Now, you don’t have to be below the technical poverty line (aka making an annual income of $13,590 for an individual and $27,750 for a family of four) to feel the pinch.1 With inflation, recession and everything else . . . whatever your income is, money definitely isn’t stretching as far. Still—if you have a goal to get debt out of your life, you can push that goal forward. And once the debt’s gone, all that money is back in your budget. So it’s completely worth it. It really is!

But how can you do it? How can you get rid of debt on a low income? Follow these eight steps.

  1. Save a starter emergency fund.
  2. Find out how much debt you have.
  3. Create a budget.
  4. Pay off your debt with the debt snowball method.
  5. Increase your income.
  6. Cut your expenses.
  7. Avoid debt payoff scams.
  8. Believe you can do this. (Because you can.)

1. Save a starter emergency fund.

Get yourself $1,000 in savings as soon as possible. We call this a starter emergency fund. Now, you might be thinking, Whoa, wait, we were just talking about debt, and now we’re talking about saving money? Yes, and here’s why.

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This puts a safety net between you and those “life happens” moments—because then, you can pay cash instead of reaching for the credit card and adding to your debt. This is why the very first step to getting rid of debt is saving up that $1,000 fund.

When you’re on a tight income, that might seem like an impossible task. But we’ve got super practical ways to free up money for your savings and debt payoff goals coming in Steps 5 and 6!

2. Find out how much debt you have.

You can’t conquer something if you don’t know what you’re up against. The same goes for your debt. So, you’ve got to sit down, pull out the bills (or open up the online accounts), and list out your debt.

Yes, it may feel overwhelming at first. But whatever amount you’re staring down—you can pay it off. And looking at that total shouldn’t feel defeating. It’s your second step toward getting out of debt and finding freedom!  

3. Create a budget.

Listen, budgets get a bad rap, but they’re really just a plan for your money. Whatever your income, you need to budget. No matter your financial goal, you need to budget. Because making a plan for your money means telling it where to go instead of wondering where it went!

Set up your budget by listing your income, listing your expenses, and then subtracting the expenses from the income. This should equal zero—which means you have a zero-based budget, which means you’re giving every dollar a job in the budget.

(What it doesn’t mean is that you’ve got zero dollars in the bank account. Leave a little buffer in there so you don’t overdraft.)

A zero-based budget means you’re making a plan for all your money. Every. Single. Dollar. Because money left unplanned gets spent accidentally—and when the budget’s tight, you have absolutely no room for accidental spending!

4. Pay off your debt with the debt snowball method.

Once your budget is in place, it’s time to do the thing. Pay. Off. The. Debt.

The best way to do this is called the debt snowball method. Here’s how it goes:

  • List your debts from smallest to largest, no matter the interest rate.
  • Make minimum payments on all your debts except the smallest.
  • Pay as much as possible on your smallest debt.
  • When it’s paid off, move everything that was going to that debt to the next smallest.
  • Repeat until every debt is gone.

Why aren’t you focusing on interest rates right now? Because you need a quick win. When you knock out the smallest debt first, you get motivation. When you pile that payment onto the next debt, you get momentum. Motivation plus momentum equals victory.

You’ll be like a snowball rolling down a hill, getting bigger and stronger with every debt you knock over.

Okay, but with a lower income, how do you get that “as much as possible” to throw at your debt? The next two steps will help.

how to get out of debt on a low income5. Increase your income.

One way to get extra money packed onto your debt snowball is to increase your income. This can look like a lot of different things:

  • Grabbing a side hustle (like delivering groceries or driving for a rideshare service)
  • Taking on freelance clients (doing things like writing or graphic design)
  • Selling stuff (with online sites or an old-fashioned garage sale)
  • Switching jobs (finding something that pays better)
  • Working overtime (just for a season!)

Yes, all this is extra work, but it’s also extra income. And, we’ll say it again—this is just a season. The debt will be gone, and your income will shoot up when those payments are out the door.

6. Cut your expenses.

Another way to get more margin in your budget is to cut some spending. That can look like trimming back on some budget lines—and cutting others out completely. (Say it a third time: This is just a season!)

Here are a few quick tips for lowering expenses:

  • Meal plan to lower your food budget.
  • Cut out restaurants.
  • Only run appliances when they’re full.
  • Combine your errands to save on gas.
  • Stick to clothing purchases you need.
  • Cut back to one TV streaming service.
  • Look into warehouse memberships to save on groceries, household items and gas.
  • Use the free version of your music subscription.

Quick note: For both Steps 5 and 6, make sure you put all the extra money in the budget toward your debt snowball. All of it. It’s so easy to turn those savings into splurges without even meaning to. But now’s not the time for that. This is the time to crush your debt.

7. Avoid debt payoff scams.

Here’s the deal: There are plenty of companies out there who know you’re in a tight spot. They’re wolves on the prowl, and they’re ready to pounce so they can make money off your situation. This. Is. Crap. Don’t fall for the scams.

Here are some examples of debt payoff schemes to avoid:

  • Personal loans: Don’t take out a loan from a bank, a family member or a friend to pay off your debt. That’s going backward.
  • Credit cards: Avoid credit card balance transfers or trying to juggle your debt by paying off a loan with a credit card. It usually means more interest (and more debt) in the end.
  • Debt consolidation: This seems like a good idea at first because you’re bundling your debts into one payment—but that one payment can come with higher interest and a longer payoff term, which means you’re in debt even longer.
  • HELOC: This is when you borrow against the equity in your home and you’re basically trading something you actually own for more debt.

They’re all promising debt relief, but all they bring is more heartache. Stay far, far away.

8. Believe you can do this. (Because you can.)

Okay, now you know how to pay off debt, no matter your income. But the truth is, it won’t always be easy.

You have to take a serious look at how you deal with your money. You have to make extra money or tighten up spending. You have to stay the course, even when companies try to tempt you with offers that seem too good to be true (because, well, they are).

How? How do you keep the motivation going—through all that—so you can get debt out of your life for good?

  • Remember your why. What’s the inspiration, the fuel to your fire to get out of debt? A better life for your family? Freedom from paying for your past? The dream of a better future? Don’t forget why you’re doing this hard work!
     
  • Get advice. It’s hard to go it alone. Find yourself some accountability partners—and some cheerleaders. If you want to talk to a pro, connect with a Ramsey Preferred Coach. They’ll mentor you through any money goal with zero judgement.
     
  • Get back to the basics. You need a clear, step-by-step plan and some personal finance basics. With Financial Peace University, you’ll get both.

Listen, this is a nine-lesson course that will teach you everything you need to know about money management. But for right now, start by watching just the first two lessons to set a solid foundation. These lessons are all about how to get your footing, set up your budget, and pay off your debt.

They’re exactly what you need right now.

  • Believe in yourself. You are strong and capable of doing hard things. You. Are.

And through it all, keep coming back to that truth. Believe you can do this, put in the effort—and you will get the debt behind you. Then, nothing will stop you from moving forward with your money. And your life.  

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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