How to Become Debt Free While Earning a Low Salary
I believe you would agree that being broke is not a pleasant experience. Being out of money while being in debt is much harder. However, I am certain that you can learn how to become debt free on a little salary. Here’s what my family and I came up with…
When trying to get out of debt on a tight budget, prioritize your payments from most critical to least important. The most important costs to pay are those for housing, electricity, food, and transportation. After that, begin to stick to a monthly budget in which you spend less than you earn. Then pay off your lowest debt first, while just paying the bare minimum payments on your other obligations.
When we’re in debt and our income is limited, it’s easy to believe that the only way ahead is to keep charging our credit cards and hoping that everything works out.
However, there is a better method!
Learning how to become debt-free while living on a limited salary IS feasible to do. It is possible to reach a point when you owe no one anything at all (except maybe a mortgage payment, such as an iva mortgage).
The relief of not having to worry about all of those payments, debt collectors phoning, or the never-ending cycle of running out of money before the end of the month will come when you get there (and believe me, you will).
Throughout this piece, we’ll look at how to become debt-free, what to do if you find yourself in a financial bind, and what the advantages of being debt-free are.
Specific to this discussion will be how to achieve debt-free status while living on a limited income.
What does it mean to be on a low income?
According to the US Census Bureau, the median household income in the United States is $55,322.
In 2017, the poverty line for a family of four is $25,094, which is slightly less than half of the average income. As a result, learning how to become debt-free on a low salary cannot begin unless we have a clear understanding of where we are starting from.
They go on to identify the poverty thresholds depending on the number of family members (all of whom live under the same roof), which are as follows:
1 individual (under the age of 65) – $12,752
$16,493 for two persons
$19,515 for three individuals
In other words, if you or your family falls anywhere near those poverty levels, you will almost certainly fall into the low-income group.
Of course, where you live makes a significant impact, since the cost of living in Knoxville is far lower than the cost of living in New York City or Los Angeles.
Check out the Low-Income Database on the HUD website, which enables you to enter your city or state and discover what the low-income criteria is for that particular region in which you live.
How can I pay off my debts if I don’t have any money?
When you owe a lot of money and are out of money, it’s a terrible situation to be in.
Yes, I understand!
My family was previously in debt for more than $60,000 (and it didn’t include the house), yet my earnings was much less than $80,000 per year.
Trying to raise a family on a single income is difficult, but we had also made a number of poor financial mistakes in the past.
Fortunately, we came upon Dave Ramsey’s Baby Steps program somewhere along the line in our journey.
That prompted us to consider how we may become debt-free while living on a limited income. We no longer have any debt (except for our mortgage).
Despite the fact that we are not affluent, we live the life of our dreams every day, free of the worry and financial concerns that used to bother us.
To pay off debt when you don’t have any money, you need a strategy. To be more specific, you must:
Create a documented home budget that you can refer to each month.
Remove any costs that aren’t absolutely required.
Prioritize the bills you do have, starting with the most essential and working your way down to the least critical.
Select a debt-paying strategy that is effective for you (like the debt snowball method)
When attempting to get out of debt, there are many costs that need be reduced.
As previously stated, I advocated for the elimination of superfluous costs. But how can you distinguish between required and wasteful expenditures?
Listed below are the top ten items that many Americans squander money on each year. So, if you’re wondering about how to become debt-free on a low salary, try removing any of these items from your spending patterns that are now in place.
Purchasing apparel from a reputable brand
Purchasing brand new automobiles
Coffee runs to Starbucks on a regular basis
Eating out on a regular basis
Every day at the office, I go out to lunch.
Using credit/debit cards for regular transactions, such as cable television
Keeping your air conditioning below 72 degrees Fahrenheit. Driving with underinflated tires.
Clothes dryer sheets and fabric softeners
Shopping for groceries while you’re hungry and/or without a list is a bad idea.
Many of the items listed above (as well as a slew of others) are part of our normal routine. The majority of the time, we don’t even consider them. Many of these items aren’t worth a lot of money on their own.
However, if you do several of them on a daily basis, it may mount up!
However, if we are to learn how to become debt-free while living on a limited income, they must be eliminated. Once you’ve paid off your debts and brought your finances under control, you may indulge in a little luxury here and there.
Can’t bear the thought of living without cable television?
Purchase the top-rated digital antenna from Amazon for less than $30, or invest in a Roku stick to access Amazon Prime, Netflix, Hulu, and other comparable channels for less than $100. Don’t have an Amazon Prime membership? There are a plethora of channels, movies, and television series to choose from.
Is it a want or a requirement?
When it comes down to it, if you want to learn how to become debt-free on a low salary, you must learn to assess every spending choice you make.
Is it a wish or a necessity to do so in the simplest manner possible?
A want is anything you desire, such as a new pair of shoes, a great bottle of wine, or the shining rims on your vehicle.
The necessities, on the other hand, are a requirement. Food, power, clothes, gasoline for automobiles, and so forth. In addition, it is quite OK to me if you place coffee on the need list rather than the want list. However, that daily trek to Starbucks is unquestionably a desire.
Are you looking for a simple and inexpensive solution to reduce your expenses?
Trim is a new service that I’ve recently discovered. Negotiations are conducted with the bill firms of your choosing by them. A tiny part of the savings is taken by the company if they are able to cut your payments. If they are unable to lower your expenses, there is no charge to you.
The software automatically examines your monthly invoices and expenditures, and then compares them to the savings programs offered by practically all suppliers, such as banks and credit unions. You may easily put a few additional dollars in those envelopes each month by doing this!
When they match, you are able to save. In addition, they will take care of the inconvenience of canceling memberships that you no longer desire and renegotiating expenses such as insurance and cable bills on your behalf.
Simply join up and make purchases with your Visa card to get automatic savings back on your bill!
What steps should I take to become debt-free?
Stress-relieving benefits of debt-free living are many.
Sure, you may have a mortgage, but you’d still have to make that payment even if you were renting; but, with a mortgage, at least the interest is low, and you’re accumulating equity for your own benefit as well.
To become debt-free, you must first arrange your finances, then control your emotions (particularly when it comes to spending), and then eliminate the old patterns that got you into this mess in the first place.
First and foremost, as previously said, you must create a documented home budget. Following that, you should have specific objectives for yourself.
If you just set off across the country with no goal in mind or a map in hand, you will almost certainly end yourself in a place where you don’t want to be. In the same way, achieving a goal is a process that takes time.
Preparing a clear blueprint and breaking it down into small, manageable chunks is essential.
With the aid of small stages, we can make the ultimate objective of how to become debt-free on a limited income seem less daunting. However, taking tiny steps might also result in minor victories along the road.
The prospect of paying off debt while still attempting to avoid bankruptcy may be daunting, particularly when relatives and friends spend money like there’s no tomorrow while we carry our own bag lunches to work.
In order to become debt-free, what are the first actions to take?
It’s time to get started once you’ve followed my above strategy to become debt-free and minimize the unneeded spending I specified.
My family and I followed the following STEPS EXACTLY when we started our path out of debt and into the life we enjoy today.
Fill up your Excel Budget Spreadsheet with all of your expenses and all of your income.
If it is not an emergency, avoid using credit cards altogether.
To pay for everyday costs, make use of the Cash Envelope System.
First and foremost, pay your energy, water, and food expenses.
Don’t forget to account for unexpected costs in your budget (like oil changes & car registration)
Make a strategy for how you will save for your holiday expenses.
Last but not least, pay your credit card and medical expenses.
List your credit card and medical bills in descending order from the lowest to the highest.
Pay just the bare minimum on everything but the smallest, then pay as much as you possibly can on that.
Move on to the next smaller debt and so on until it is completely paid off
In the event that it is necessary, just pay $25 (but on time) to credit card and medical bill companies – Simply because you didn’t turn in as much as they requested doesn’t mean you’ll be shown on your credit report as having been late.
How can I get out of debt if I don’t earn enough money to pay off my obligations?
It does happen!
When my wife and I started our debt-free path in 2008, we immediately recognized that we would be unable to make ends meet (financially) with the mortgage payment we were making at the time.
I was earning around $70k per year, and our mortgage payment, which included taxes and insurance, was over $2,700 per month!
As a result, we concluded that this was not a sustainable situation and decided to sell our home and temporarily rent a modest duplex until we could get our debt under control.
Unfortunately, we made the decision to sell our home in August 2008. Think you can guess what else occurred that month?
Yup. We’re talking about the global economic and financial crisis of 2008-2009.
After everything was said and done, it took over a year and a $100,000 price reduction to finally sell the item. That delayed our learning how to become debt free on a low salary, but it did not deter us from achieving our goal.
Do not be afraid to review items like a mortgage or a vehicle payment, and if they are just not sustainable, let them go to the trash!
How to earn a few hundred dollars more every month without having to deliver pizzas
Make no doubt about it. In order to save my home from going into foreclosure or bankruptcy, I would not even think twice about doing so.
However, the good news is that there are a plethora of activities you can do to make a few hundred (or more) dollars every month, many of which can be done from your computer.
Heck, this blog of mine, which you are now reading, produces far more than that. Do you want to establish a personal blog of your own? Begin by reading my in-depth article on How to Create a Website (in English).
However, even if you do not want to create a website, you may do the following:
With InboxDollars, you may earn money for reading emails and completing surveys. Because it has been recommended by both US News & World Report and Yahoo, you may be certain that it is not a hoax.
Make money as a dog walker in your area – Yes, you can be paid to walk other people’s dogs in your community. Rover is a national network that connects dog walkers with dog owners. Simply join up, tell Rover what days and hours you are available, and you can begin earning money right now!.
Get rewarded when department shops overcharge you – if you register with Paribus (which is completely free! ), they will pay you back.
1. Increase the proportion of your debt that is being paid off.
Credit card debt and loans may be paid off considerably more rapidly if you allocate at least 15 percent of your salary — or income from Social Security or pensions — to them. This is because most credit card companies only need you to pay approximately 2 percent of your outstanding total each month. Making tiny, minimal payments implies that your debt amounts are accruing interest as each month or each year passes, increasing the amount of interest you owe. It is possible to save a substantial amount of money on interest payments alone if you pay off huge sections of your debt within a few months.
2. Make use of your savings to pay down higher obligations.
Make no apprehensions about using a part of your savings to pay off high-interest-rate debt. It is a wise idea to utilize cash reserves to pay down debt since it will prevent you from paying interest on those high outstanding sums. The reality is that, despite the fact that you may feel relieved to have some more cash in your bank account, the truth is that those money aren’t actually doing anything for you — especially given today’s historically low interest rates. Don’t spend all of your money before you have enough. If you’re sitting on a large sum of money, consider using part of it to pay off some of your outstanding debt.
3. Try to get a cheaper interest rate through negotiating.
Make contact with your creditors in order to negotiate a reduced interest rate. If you have a good payment history and good account standing, you’ll be astonished at how many creditors will be prepared to lower your interest rate for you.
If you have had a positive connection with your lender for a number of years, you may be in a much better position to qualify for a reduced rate of interest. As you pay down that debt over the course of the year, you may be able to save some money on interest payments as a result of this.
4. Make use of your tax return check to pay down your financial obligations.
While it may be tempting to splurge on a high-ticket item or take a trip with your tax return check, it would be wiser to use the money to pay down part, or all, of your debt instead of spending it. Give some thought to the advantages of lowering your monthly payments by using a single lump-sum debt repayment approach. Instead of enjoying the short-term gratification of a purchase, you’ll reap the advantages of a lower debt burden for the rest of the year and for years to come by avoiding debt altogether.
5. Make money by selling stuff.
Organize a list of stuff that you may potentially sell on eBay, Craigslist, or at a garage sale to help you get started. Selling stuff you no longer need or are willing to part with — and using the earnings to pay off debt — might help you significantly reduce your debt burden in a very short period of time.
6. Think about cashing in your life insurance policy.
It is possible that cashing in your life insurance policy will be a feasible debt repayment option since it will allow you to pay off higher sums of debt more rapidly. If you are feeling overwhelmed by debt and do not have any beneficiaries who would benefit from your life insurance policy — for example, a husband or children — it may make sense to utilize the cash from your life insurance policy to pay off your debt instead.
If you have a term life insurance policy, this technique is not applicable to you. It only works for those who have entire life insurance policies that have accrued cash value. In addition, even if you have beneficiaries, you may be able to access a portion of the cash value of your whole life insurance policy, allowing you to use the money to pay down debt while still leaving a portion of the earnings to your loved ones.
7. Increase your earnings.
In order to pay off your debt as fast as possible within the year, you should seek for methods to boost your income. You should then utilize the additional funds to pay off your debt. Prepare for at least a few months of increased income by taking on a part-time job or negotiating with your employer. Make debt removal your first goal and find a strategy to generate additional money as soon as possible.
8. Make a balance transfer from your credit card.
The majority of us routinely shred all of the credit card debt transfer notices that appear in our mailboxes each month. A balance transfer, on the other hand, may assist you in your debt reduction efforts if you desire to go on a tear. Transferring high-interest debt to a zero-percent contract — one that lasts for at least 12 months – eliminates all credit-card interest payments completely. You’ll have more money in your bank account as a result, which will allow you to pay off those credit card debts. Just be sure to read the tiny print before signing up to ensure that you are receiving the advertised cheap rate.
9. Make use of a statute of limitations legislation in order to get rid of previous debt.
Old credit card bills — particularly old credit card debts — may be paid off even after the debtor is no longer legally compelled to do so. We all want to see our debts paid off. However, if things are very tough and you just don’t have the money, you should prioritize current payments and consider deferring repayment of previous invoices that are seven to ten years old, or even longer.
Each state has its own set of laws governing the collection of outstanding debts.
The laws in certain jurisdictions prohibit debt collectors from collecting on a specific sort of debt after a set length of time, while others restrict how long creditors may sue you for a debt that has already been paid. In any case, you should check to see whether the statute of limitations has expired on any past debts you may be liable for. If it has passed, you will most likely be able to forego payments without having to worry about the financial, legal, or credit ramifications that may follow.
In order to get further information on dealing with old debts, you should contact your state’s Attorney General or the consumer protection agency for assistance and guidance about your state’s statute of limitations on credit card debt.
10. File for bankruptcy to have your credit card bills discharged.
Only in the most desperate circumstances should you consider declaring bankruptcy to get out of debt. However, in severe situations — such as when you have no income and entirely unmanageable credit card payments or medical costs — a Chapter 7 bankruptcy petition may be necessary in order to discharge credit card debt in its entirety and avoid further financial hardship.
If you believe you have a moral obligation to repay your obligations, you may want to consider filing for Chapter 13, which may help you pay off part of your credit card debt. The remaining debt is then paid off over a three- to five-year period.
A personal financial expert, television and radio personality, and frequent contributor to AARP, Lynnette Khalfani-Cox is known professionally as The Money Coach(R). You may follow her on Twitter and Facebook, if you so choose.
