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When you’re deep in debt, it can be hard to see your way out. You want to learn how to pay off debt when you’re broke, but it feels impossible. Stop right there! Paying off debt is possible, no matter where you fall on the income range.
It might take you longer to get out of debt on a low income, but you can do it. You just have to have the right mindset, the right plan, and the right tools. So get excited about paying off your debt! A debt free future is full of possibilities and we can get there together.
Step 1: Decide You’re Really Going to Do This
You can’t just “want” to get out of debt. You have to decide, 100 percent, that you’re going to be debt free.
This step is especially important for those paying off debt on a low income. It’s going to take longer to pay off your debt, and that’s OK. That’s just how it is right now. You’re going to need lots of quick wins and motivation to keep you going, which is why I love the debt snowball method.
- Related: How to Live On a Tight Budget
Step 2: The Debt Snowball
Chances are you’ve heard of this before, but if not, here’s how it works. Make a list of all of your debts, including any credit card balances, vehicle loans, personal loans, etc. Anything you owe money on goes in this list. The only thing you don’t have to include here is your mortgage, unless you want to focus on paying that off too. Totally up to you!
Now put those debts in order from the lowest balance to the highest balance. Here’s an example I just made up:
- Capital One: $250
- Chase: $1,200
- Toyota Finance: $22,000
- Student Loans: $50,000
Your debt snowball probably won’t look as short or as neat as this example (mine sure doesn’t) but you get the idea. Just make sure each debt is on here starting with the lowest balance first.
Step 3: Focus On Just One Debt At a Time
This is the best part because you get to see some real progress fast! If we take the first item in our debt snowball example, the $250 credit card, that feels much more doable than all $73,450 of our total debt.
Remember, this step is all about keeping motivation up. If you try to pay a little extra on each of your debts, you’re going to lose steam fast when none of the numbers seem to really be going down. Instead, focus on one debt at a time and knock it out. (Do be sure to keep making minimum payments on everything you owe.) Take any extra money you have and throw it on the first item in your debt snowball.
Once you (quickly) get that first debt knocked out, celebrate! Then move on to the next debt on your debt snowball list. This time you’re going to add the minimum you were paying on your first debt, plus all the extra money you’ve got, to pay down the next debt.
As time goes on your “snowball” keeps getting bigger and bigger, and you’ll be able to pay off each debt quicker.
Step 4: Celebrate Your Wins
Every time you pay off one of your debts, you need to celebrate. This is just one more way to keep your motivation high and keep your mind on your debt payoff goal.
For some people, this step is actually kind of hard. Once you get into the habit of paying off debt, it can be hard to spend any extra money on yourself that could have gone to paying off debt. Resist the desire to skip this step!
Don’t worry — I don’t want you to spend a ton of effort or money on your celebrations. Think about what works for you. Would it make you the happiest woman alive to get a pedicure? There are some things you’ve probably given up temporarily to get out of debt. I personally love buying new hardback books, but at $25 or so a pop, it’s something I had to give up. Rewarding myself with a new book with each debt paid off would be a huge motivator for me!
Pick a reward and make yourself follow through. I also find it super motivating to think about what we’ll do once we’ve paid off all of our debt. Taking the family to Disney? A trip to Hawaii? The sky is the limit!
Step 5: Bring In Some Extra Money
If you really want to get motivated and pay off your debt fast, consider taking on a side job. You can go the traditional route and wait tables, become a delivery driver, or work retail at the mall. Remember, it’s only temporary. You could also try your hand at working from home by doing some freelance writing, a remote customer service position, or starting your own blog.
One of my favorite ways to bring in extra money is by doing surveys. I literally do them in the evenings while we watch Netflix, and I give myself a small quota to do every day. My goal is to take enough surveys so that I can cash out for a gift card each month. By taking a few minutes each day, I feel like I’m helping our household pay for groceries, a dinner out, etc. This frees up money in our budget that we would pay toward those things to go towards paying off debt instead! You can sign up with Survey Junkie (my favorite for their clean and easy website) here.
Step 6: Free Up Some Money By Lowering Your Expenses
Finally, take a look at your monthly bills. If you’re already living on a low income, you may think your bills are as low as you can go. I encourage you to take a look anyway, and try to find anything that you can get even lower.
For example, I recently signed up to have my cell phone bill auto paid, and it saved me $10 a month on my bill. Every single dollar counts when it comes to paying off debt!
You Can Pay Off Debt When You’re Broke
With enough patience, budgeting, focus, and strategy, you will become debt free. Stick to the plan and keep your goal fresh in your mind always. Think about what you and your family will be able to do once you’re debt free. Print out pictures, trackers, anything to keep you motivated! Paying off debt with a low income is possible, and it can work for your family. You just gotta do the work and have fun along the way!
What do you do to keep yourself motivated to pay off debt? Leave a comment below!