If you feel like you’re stuck in a hole of debt, there is hope! Here are 10 essential tips for how to get out of debt this year, even on a low income.
Debt free lifestyle
I want to share something personal with you…
We are less than a year away from paying off our mortgage.
And we’re doing this on what would be considered a lower income.
We also have zero consumer debt and zero student loan debt.
It’s kind of hard for me to believe it actually!
My husband and I don’t agree about everything money-wise (does any couple??) but we are lucky in that we’re both naturally frugal.
We live below our means. We look for deals. We’re careful with our spending. We enjoy road trips and camping more often than big expensive vacations away.
I know we are not the norm, especially for our ages.
This inspired me to want to share my best tips on how to get out of debt, and there’s a handy dandy infographic below you’ll want to save that has a recap of all the tips.
Update: Our mortgage is now paid off. Find out how we paid off our mortgage early – even on a low income
We need debt reduction tips more than ever
Here are some sobering statistics on debt in the U.S.:
- Half of Americans live paycheck to paycheck
- Almost 20% of Americans have $0 saved to cover emergency expenses
- 62% of American adults have credit card debt
- The average credit card holder has at least four cards
- On average, each household with a credit card carries over $8,000 in credit card debt
- 17% of Americans have student loan debt
- Only 39% of Americans have enough savings to cover a $1,000 emergency
- Men have a median savings balance of $7,000, while females come out at just $2,000
I wanted to share these statistics so you can know you are not alone, and to help reduce any shame you might feel about your debt situation.
You can learn how to get out of debt, without putting any additional blame on yourself. You are where you are but that doesn’t mean you have to stay there. That energy can put toward taking action on getting out of debt.
Related reading: How to eliminate credit card debt while still enjoying your life
These tips to get out of debt are different
These debt-free living tips include practical numbers-oriented tips AND also mindset tips. The combination is KEY and is why trying to get out of debt might not have worked for you before.
Being in debt is not just a numbers problem.
It involves numbers and math, yes, but getting out of debt also involves new habits and a change in mindset. If you’re stuck on the mindset piece, this post has powerful money affirmations to help you let go of limiting beliefs about money.
Also read this post on 100 Simple and practical ways to better yourself this year. It has 25 tips on how to better yourself financially that will help tons!
Tips to get out of debt infographic
This tips for debt infographic is a great summary of all the points we will go over in more detail below to get you to the debt-free life you want.
Go ahead and save it to refer to ⇓⇓⇓
Here are 10 tips to help you pay down your debt:
If you don’t track your income, expenses, and debt, it will be hard to climb out of debt.
It can be scary to really take a look at your debt and where your money is coming and going but it’s SUCH an important step. Remember, you are not alone and you CAN do this.
You have to know your financial situation before it can change.
An easy (and free) way to track your money is by using Personal Capital. It makes tracking your money so simple, and we want to keep this step as easy as possible so that you will do it!
No need to use complicated Excel sheets or scribbling numbers on scrap paper that will just get lost.
Personal Capital keeps track of everything for you. It will show you a clear picture of where you are and help you set realistic money goals to work towards. You can sign up for free here.
2. Know that you can get out of debt
No matter what your income is, your debt is, it can improve. You are not stuck.
There are many inspiring stories about everyday people (shout out to Arrested Development) paying off debt. This woman paid off $20,000 in one year. You are an everyday person and you can have your own getting out of debt story. Even if you are starting to feel hopeless about your debt, try to keep the tiniest bit of hope that it can get better. Because it ABSOLUTELY can.
Something else that is important to remember is YOU are not your financial situation. Don’t let your money situation overflow into how you feel about yourself. There will always be people who have more than you and people who have less than you.
Your money does not equal your worth. Every one of us has the same level of worth – let’s call this one unit of worth. I am not worth more than a homeless person, and I am not worth less than a billionaire. I have more money than one and less money than the other, but we all have one unit of essential worth.
If you had more money than you do right now, you would still be “worth” the same.
3. Think about your why
If you think about WHY you want to pay off your debt, what it will mean to you when your debt is gone, it will help you make those day-to-day choices that will lead to you paying off that debt.
Don’t focus on deprivation or buying less, or having to cook at home more.
Try to put the focus on feeling more peace and less stress as you put more money aside to pay down debt (by buying less/looking for deals/not eating out). Or the feeling of happiness to save for a vacation (by reducing spending/meal planning/buying used instead of new).
You will still be doing the same things to pay down debt or save money, but putting the focus on what you’re getting out of it (peace, less stress, a fun trip with the family) makes it easier to make the immediate sacrifices.
4. Consolidate your debts
If you have multiple debts you might want to look into debt consolidation.
Instead of having to keep track of multiple debts with different interest rates, you negotiate a loan that covers all of them. That way you have only one loan/payment and it should be at a lower interest rate.
The monthly payment of this consolidated loan should be less than the total loan payments you are making now, otherwise it won’t be helping you.
For debt consolidation, you would either have a loan or line of credit with a lower interest rate. Many offers of a line of credit have MUCH lower interest rates than credit cards, which is one of the types of debts you might have.
For example, I had a credit card with a 19% interest rate – super high. When I was in my bad financial situation I spoke with my bank and arranged a line of credit with a 4% interest rate. What a huge difference! I paid off my credit card debt right away with the line of credit, and then worked to pay off the line of credit. This relieved debt stress because the debt I was accumulating each month was significantly lower on the line of credit.
If you need help consolidating your debts, click here for professional credit repair help (BBB accredited).
5. Choose your debt reduction plan: debt snowball or debt avalanche
If you have more than one type of debt, and you weren’t able to (or didn’t want to) consolidate your debts, then you have a choice with the order of how you want to pay them off.
Two popular methods of paying off debt are the debt snowball and the debt avalanche.
Enter David Ramsey, guru of tips for debt.
We cannot get through a post on how to get out of debt without mentioning you.
David Ramsey popularized these two different methods of debt reduction.
Debt snowball for paying off debt
The debt snowball method involves paying off your debt in order of balance, from lowest balance to highest balance, regardless of interest rate.
Debt avalanche to pay down debt
In the debt avalanche method, you pay off the debt with the highest interest rate, then the one with the next highest interest rate, and so on.
There is not one best way to pay off debt.
There IS one best way to pay off debt and that is the method that works for you and your temperament.
Mathematically, using the debt avalanche would result in paying less debt overall. So the debt avalanche would seem to be the clear winner.
But not so fast:
If you feel so stuck with debt and need to see a win right away to keep motivated, the debt snowball might be right for you. You will be able to pay off that first debt, that will make you feel good, and you’ll keep going.
If you can keep going with what will feel like an uphill battle at first, to have bigger gains long term (meaning you’ll pay less overall), the debt avalanche will probably work for you.
6. Stop eating out completely
Yes I know this sucks. It’s fun to pick up a Double Frappuccino Latte Macchiato during the workday or a noodle bowl with your work friends at lunch.
But it is so much more expensive to eat out then to bring your own food and coffee from home.
According to this Forbes study, it is almost five times more expensive to order restaurant delivery than to cook the same meal at home.
But what about if you’re getting takeout during your work day so you’re not paying for delivery like in that study?
Let’s get our calculators out and math this up to see how much you could save by bringing food from home:
Let’s assume you spend $10 per meal buying lunch every weekday (which is on the inexpensive side for a prepared lunch). Over the year, this adds up to $2600.
From the study above, cooking from home costs on average $4/person per meal. This comes out to $1040.
The difference is huge.
You save $1560 over the year per person! This would make a substantial payment toward your debt.
If cutting off all restaurant/café food all at once is too drastic for now, you could try baby steps to get you there.
Try to challenge yourself by bringing food from home for a whole week. If this is manageable, try for a month. Put the money you save into paying down your debt.
If you’re new to meal prepping or meal planning, it will help make cooking at home much easier, more efficient, and is another way to save money on food.
Here are meal planning post to help:
- 7-day Family Meal Plan that will set you up with healthy eats
- Save Money By Meal Planning (+ Meal Plan for the Week)
- Genius tips on eating healthy on a budget
7. Learn to say no to spending money
Say no to impulse buys. Say no to events out if they are not in your budget or are going to put you further in debt. Pick the things that are most important to you and your family.
Being frugal is a big part of why my husband and I are close to having no debt at all. We say no to things 🙂 We don’t spend money on the things that don’t matter much to us (for me: new clothing, salon visits, footwear), so that we can have more money to spend on what matters to us (me: trips to visit extended family, (yes) lattes, doing fun new things with Miss O).
If an invite comes up that is not essential, decide if you really want go. If it’s in your budget and you want to, go. But if you feel like it’s too expensive for something you won’t get that much happiness out of, opt out. Saying yes to everything will put you further in debt or won’t help your savings.
8. Sell everything you don’t need and put that money towards debt payments
Years ago I went through a rough time financially. I took a lot of steps to turn my bank account from red to black (you can read about it here).
One of the things I did was look around at what I owned to see what I could sell.
I sold furniture I didn’t need, books I thought I would reread but never did; I even sold jewelry. Not only did this step net me extra money that I needed at the time, it also helped me declutter. I felt GREAT after selling all that stuff!
Almost all of us have things we never use, things we keep that we don’t even like. Take some time, go through your home, and find those things you can sell. I bet you will be surprised by what you will find that is sellable.
This post will tell you where to sell your goods for the most money: An easy way to make $500 by the weekend.
Put all the money you make from selling items from your home towards paying down your debt.
9. Use cashback sites for purchases to save money
Rakuten (formerly Ebates) is a cashback site that will give you money back from online purchases. A percentage of whatever you purchased will go back into your Rakuten account. It’s free to set up and use and is a no-brainer as you can get anywhere from 2-10% or more back on things you were going to buy anyway.
That last sentence is key!
Using a cashback site is not an excuse to go binge online shopping just to get some money back into your account. But if you were going to buy clothing, electronics, travel, household goods, things on Amazon, whatever…then going through Rakuten’s portal makes sense to save you money on those purchases.
The cash you get back you could then take monthly or quarterly and use to put toward paying off your debt.
You can sign up with Rakuten here.
10. Pick up a side hustle to help pay down debt
Making even a small amount of extra money will help you pay down your debt faster.
We are lucky to live in a GREAT time for flexible side hustles. The gig economy is wonderful for people wanting to pay down debt.
Even if you can only fit in an extra 4 hours a week, this can help chip away at your debt, or go towards savings. For ideas on flexible side hustles you can check out this post.
More side hustle posts to check out:
- Get paid to read and edit
- Search engine rating
- Selling on Amazon
- Teach English to kids online
- Start a blog
- Start a food blog
- Mystery shopping
- Freelance writing
- Best work at home companies
- Pet sitting
- Get paid to surf the web
Several of these side hustles I have tried myself and they are all flexible enough to work with having young kids at home.