How to Get Out of Debt on a Low Income

How to Get Out of Debt on a Low Income

You can learn how to get out of debt on a low income. It can seem challenging and even impossible, especially when you are faced with an ongoing process of making sure your monthly payments are made. Debt reduction takes some work. It also requires a change in the way you use money and how you think about it. Once you master a few tools, you may be able to put yourself on the path to building financial wellbeing.


Every situation is different. That is why here, we will provide you with a number of tips and strategies to help you learn how to get out of debt on a low income. Some of these methods may not work for you. Others could be steps you tried before and did not work. Yet, through a combination of methods, you may be able to finally find the financial freedom you want and deserve.

Assess Your Debt First

Assess Your Debt First

Before you can go any further, you need to have a good understanding of your debt, including how much you owe, who you owe money to, and how much they are charging you to hold that debt – usually in the form of interest rates. Here are a few steps to help you with this.

Document your debt

Write down all of the monthly debt payments you make. You can look at your credit cards, checking accounts, and debit cards to get a good idea of what you are paying every month. Write down:

  • The name of the company with the debt
  • The interest rate you are paying on that debt
  • Your balance – how much you owe
  • The minimum payment on the debt

Pull your credit report

Then, pull your credit report. You can get a copy of your credit report without cost by going to This is a site set up by the government to ensure consumers can get a free copy of their actual credit report from each of the three credit bureaus: TransUnion, Equifax, and Experian.

Your credit report could shed more light on your debts.

  • Are there any other accounts you have not listed yet on your debt sheet?
  • How much do you owe on those accounts?
  • Are there any accounts in collections or going through judgments?

Now that you have taken these steps, you likely have multiple debts listed. How much debt you have is not as important as creating a plan to get out of debt. That’s what we will focus on next.

Set Up a Cash Based Budget

Set Up a Cash Based Budget

When you have a low income, every dollar matters. While you can work to earn more money, that is not always easy to do, especially if you are already working hard to meet your financial goals. Creating a budget can help to shed light on the areas where you can see improvement.

It does not have to be overwhelming. Here is how to get started.

Determine income

Start by creating a list of all of the sources of income you have. That could come from paychecks or other types of work you may do. Only list the income you get reliably.

Outline monthly payments

Next, outline what your monthly obligations are. This should include all of your expenses, including utility costs, credit card payments, car payments, and other monthly bills you have. List the amount that you pay for that debt each month and the due date.

Outline a budget

Next, create a budget that only uses your income. Determine how much you need and can pay towards each of your monthly debts if you only make the minimum payment due. Be sure to account for all of your living expenses. That includes food, entertainment, gifts, and other spending you do.

Create a goal

The next step is to determine if you have enough income to pay all of your debts. If not, you may need to work to create extra income in some way.

  • Reduce your spending. Cut out anything you can.
  • Work to increase how much you are earning, perhaps by asking for a raise.
  • Look for ways to reduce what you are paying now. For example, EASY Wireless offers free phones and cell service. Are there any other free or discounted programs that could help you? Research each of your bills to find out.

Now that you have a budget, you can begin to create a debt free life. The goal here will be to pay off your debt as soon as you can so you end up saving money. However, there are a number of ways you can do this. More on that in a moment.

Work on Your Emergency Fund

Work on Your Emergency Fund

The next step in the process is to open a bank account, a savings account, if possible. Build an emergency fund. Before you can become debt free, you have to create an effective way to reduce the need to use credit cards. By having an emergency fund, you can do this one step at a time.

Put anything extra from your budget into your emergency fund. For most people, this should be an initial goal of $1,000. Once you reach that $1,000, you’ll move on to other ways to reduce your debt. For now, aim to put as much into savings as you can.

Then, don’t use these funds for anything but real emergencies. That includes things like your car breaking down or an emergency medical bill. These are things you may have turned to a credit card before to pay.

Find ways to save money

To build an emergency fund, pay off debt, or use any of these debt repayment options, you need to have extra funding. Many people don’t realize there are options available to them. For example, EASY Wireless provides a free cell phone service. How much do you spend each month on a cell phone and service for it? Multiple that by 12. That is how much money you could save each year by getting a free cell phone plan, if you qualify.

Do this for all of the other debts you have. Where can you cut back and save more? Put those extra funds towards your debts.

Methods to Get Out of Debt

Now that you have savings and a budget, it is time to work on paying down your debts. Even with a low income, it is critical to see that credit card debt and other types of high interest rate debt are costing you a lot more than you realize.

For example, if you spend $1,000 on dining out in a year, and you use a credit card for that with a 20% APR, that means that you are paying $1,200 for those meals at the end of the year (some differences may exist based on what payments you make).

The better option is to find a way not to use credit cards or personal loans and to focus on a cash-based budget. Just having a budget will reduce how fast your debt is growing, and that is a step you should take.

Now, consider the various options for getting help with debt relief.

Debt consolidation

Debt consolidation is a very common tool but can be hard to do if you do not have good credit or you do not have a lot of income. If you qualify for it, the goal is to pay off all of your existing loans with a new loan. Then, work to make payments on the one, bigger loan instead without driving up the other debts.

By consolidating debt like this, you may be able to pay a larger amount each month towards that one debt (all of your individual monthly payments are combined into one payment, then.) Debt consolidation like this may help you pay off your debt faster.

There are a few ways you can structure debt consolidation.

Balance transfer credit card

Balance transfer credit card

A balance transfer credit card could work for some people if they qualify for them. In this case, your goal is to transfer the debt from numerous credit cards to one single larger credit card. Balance transfers can offer some great benefits, such as no interest rate periods. However, these are difficult to get for those without good credit.

Credit card balance transfers may be available to you from your existing lenders, too. Contact your current credit card company and tell them you would like to consolidate debt. They may be able to offer a larger credit line if you transfer multiple debts to them. That is not always possible, but when it is, it can help you to pay off debt faster.

Be sure to know all of the rules and limits to these offers. A balance transfer fee may apply. Sometimes you may end up with a higher credit limit, but you may have to pay off your debt within a specific amount of time – called the zero interest period – to avoid added interest costs.

Personal loans

Some lenders offer debt consolidation loans to qualified borrowers. Here, you will obtain a personal loan for the amount you need to pay off your other debts. You then have just one loan to work with to pay each month.

A debt consolidation loan like this may be an option if you have good credit. It may also help you to save money if you can secure a lower interest rate on the debt. If you do not qualify for a personal loan – and most people do not – that’s okay. There are other options to help you to ease the debt load.

Secured loans

Another sometimes high risk option is to use a secured loan as a debt consolidation loan. A secured loan could be one that uses your home’s equity. Equity is the value of your home that is no longer mortgaged. For example, if your home is worth $150,000 and you owe $100,000 on your mortgage, you could have up to $50,000 in equity.

If you have a good credit score, you may be able to get this type of loan. However, you are putting your home at risk. If you default on your mortgage payments, which means you cannot make your monthly payment, that could mean you lose your home.

This type of debt consolidation loan is best if you are fully confident you can make the loan payments on the home equity loan on time and that the minimum payments will not be outside of your comfort zone. Be sure that, if you use this method of debt relief, you have a steady income to cover those added costs.

Credit counseling agency

A credit counseling agency sometimes called a debt relief company, is an organization that could be for-profit or nonprofit. Their goal is to help you eliminate credit card debt. These agencies typically charge a fee, but they can help many people to get the debt relief options they need that they may not have been able to get before.

Be sure you understand how they work though.

These are not debt consolidation loans. This is not a balance transfer credit card or a new line of credit. Rather, the debt relief company works with you to create a monthly budget, much like you have already done. Then, they work to create a debt management plan. This plan determines how much money you can pay towards each one of your debts each month.

Typically, this will include credit card debt, a personal loan you have, medical debt, or other debts you have. Even nonprofit credit counseling services are likely to charge you a fee for their service (it is what helps to keep them operational). That will also be included in your payment plan.

Then, the organization will contact each of your credit card companies. They negotiate a debt payment for you. The goal is to pay off debt, which means that one of several things will occur:

  • The credit card company will offer a specific amount that, if you can pay upfront, will settle your debt in full. This is often a negotiated rate lower than what you owe.
  • The credit card company works with the credit counselor to determine how much you can pay each month to pay off your debt within 6 months to a few years. They close down your account.

Once a debt management plan is credited, most of your credit cards included in the plan will be closed or frozen. You will pay the debt relief company a fee each month automatically from your bank account. Then, that credit counselor will pay your lenders according to the agreement created.

You will continue to make payments on these loans over time until you pay off the debt.

This type of debt payment offers a few things you need to understand before making the decision to move forward.

  • For-profit companies and nonprofit companies will charge a fee. You will need to pay that fee along with your monthly payment. It is still just one monthly payment, though.
  • Your credit limit is eliminated. That is, you cannot continue to use your credit. A credit freeze like this can be worrisome, but it will allow you to focus on a cash based budget.
  • Credit counseling can impact your credit score. Most often, credit scores will fall for those who are within the program. However, if you are unable to make your debt payments each month, your credit scores are probably already hurting. In the long run, debt repayment will help.
  • Your debt load is improved. That is, you will have a budget that addresses your specific needs. This may make it easier for you to make payments on time if you are struggling to do so now.
  • You have just one monthly payment. You do not have to worry about paying all of your lenders individually.
  • You will have to qualify. If you make too much money or you are not struggling with debts, the lenders may not agree to this process.
  • The credit counselor can help you to get a debt settlement. Settled debt – the amount you pay out of pocket – is likely less than what you owe. That could save you money.

Nonprofit credit counseling services like this can be beneficial to many people. Yet, there are implications to credit utilization as well as your good credit score.

Debt Snowball Method

If you are willing to put in the work and dedication, you can use the debt snowball method to get out of debt. The goal of this method is to pay off your debt on your own without creating new debt. Here’s how it works.

Develop a budget

You already have a budget that outlines what your monthly payments and debts are. Be sure it includes all of your debts. A part of this process is to determine how much extra money you have each month that could be put toward your debt repayment.

Let’s say you have $100 extra dollars a month to put toward your debt.

Organize your debts

Organize your debts

Smallest debt method

In this method, you will pay the smallest debt first. If you owe on 5 different credit cards, for example, you will start with the smallest balance. For this credit card, you will pay the minimum payment and $100 on the debt (the amount of extra money you have for the month). You continue to make this payment until the smallest debt is paid off.

Then, you move on to the next smallest debt. This time, you are applying not just that $100 but also the monthly payment from the card you just paid off. For example, if that monthly payment was $25, you’ll now have $125 extra per month to put toward the next credit card. You continue to follow this pattern until your debt is paid off fully.

This method allows you to pay the debt quickly and helps you to stay motivated to keep paying off your debt.

Highest interest debts

A second option is to adjust this process so that you focus on the highest interest debts first. Cards that have a high interest rate are going to cost you more over time. That’s because there’s more time for debt to grow due to the interest rate.

In this debt snowball method, you will organize your debts, with the highest interest rate being the first account you target. You then pay that $100 extra per month, along with the monthly payment on that account until you pay it off. Then, you move on to the next credit card with a high interest rate.

This method will help you pay less over time on your debt. That’s because you will pay off the most expensive debt first. This is often called the debt avalanche method.

The debt snowball method (either option) can be done over a long period of time. It allows you to have an emergency fund, a cash-based budget, and a debt repayment plan that’s based on your current income.

Negotiating Down Debts

Though it is not common to do so, it may be possible to contact your lenders and just ask for a debt reduction. For example, let’s say you have some extra cash from a tax refund. You want to pay off that high interest rate credit card that has such a high monthly payment.

You may be able to call the lender and explain the situation. Tell them that you can pay the amount of your tax refund if they agree to settle the debt in full. Many lenders will not do this unless they believe you will not be likely to make payments going forward. It is always worth it to ask for a better deal.

How to Work to Improve Your Financial Situation

How to Work to Improve Your Financial Situation

When you have a low income level, that can make it hard to even start this process. Consider a few tips and strategies to help you move forward in a positive light.

Find ways to save money

There are potential ways to reduce what you owe. We mentioned getting a free cell phone set up, for example. There could be other options available to you, too.

  • Reduce the number of subscriptions you are paying for to watch TV and movies.
  • Call your utility company and find out if you qualify for a reduced rate due to having a low income.
  • Turn to Medicaid – be sure you are getting health coverage through Medicaid if you do not qualify for it otherwise. That will help minimize medical bills.
  • Call your credit card companies to ask for an interest rate deduction. If you make payments on time, they may be able to help you with this.
  • Avoid eating out. You can often prepare meals for much less by eating at home.
  • If you are having trouble with your mortgage payments, find out if your lender has any type of debt relief tools available that could help you. You may be able to refinance your mortgage loan to a lower payment in some cases, too.
  • Trim back your food budget to focus on healthier and natural foods with less processed foods.

Examine all of your monthly bills. Find simple ways to lower monthly payments whenever possible.

Find ways to make money

Find ways to make money

Extra cash is a great way to help improve your financial situation. There could be many simple things you can do to achieve this. Consider the following:

  • Start a side gig, such as babysitting at home, Uber driving, or delivering food for local businesses.
  • Consider a part time job that allows you to earn a bit more each month by working a few hours a week. Working in a restaurant, retail shop, your child’s school during the school day, and in nursing homes typically do not require a lot of experience and offer flexible hours.
  • Consider an at-home job. You may be able to help companies with customer service jobs from home. Just remember – if you take a work from home job, you should never have to pay out of pocket to do so.
  • Do odd jobs you can pick up. That could include cutting the grass for neighbors, babysitting for family or friends, or house sitting. Find ways to use your talents to help you boost your savings.
  • Talk to your employer about a raise or working more hours. There could be opportunities available to help you earn more without even working a second job.

Earning more money is a possibility for many people. If you put more of your time into work, be sure to apply that extra income toward your specific debts. That way, it is going to help you to build financial stability in the long term.

Avoid costly mistakes in debt relief

Unfortunately, there are a lot of scams out there that target people with low income and promise big changes. There is no doubt that if something sounds too good to be true, it probably is. There are a few ways you can protect yourself:

  • Always verify anything as legitimate before investing your time or money into it. Look to the Better Business Bureau and read reviews before working with anyone.
  • Never pay for opportunities. Even if you are paying for information, that info is probably free online to you already.
  • Don’t fall for gimmicks like companies that promise they can raise your credit score for a fee. Anything they can do, you can do directly with the credit bureaus.

Most importantly, be consistent. It is certainly challenging to get out of debt, but when you work towards these goals on a consistent basis, you’ll find that month after month, your financial situation is getting better. That can make it well worth the work that you put into it now.

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