Not all of us make six figures which means paying off debt can be tough. But it’s not impossible. We’ll show you how to get out of debt, even on a low income.
At LMM we tell you that your debt is an emergency. And like any emergency, the longer you wait to deal with it, the worse it gets.
So you can’t wait for the next big raise, the next new job, the winning lottery numbers to help you tackle it and show you how to get out of debt.
You can tackle it right now. Don’t let the emergency get worse. You don’t have to be making big money, or even more, than you are making right now to at least start paying off debt.
Cost of Debt
If you already have debt then probably one of your biggest monthly expenses is dealing with that debt. That sucks and you’ve gotta do something about debt management ASAP.
The best way is to just get the people you owe money to forgive some of what you owe. Sounds crazy but it works surprisingly often – to the tune of billions of forgiven dollars a year.
Imagine if you owed $10,000 and told your credit card company that you can only pay back $3,000 or you’ll have to declare bankruptcy and in turn pay none of it.
They would rather get something over nothing and will either flat out agree or come with a counter offer like $6,000.
Either way, it’s a free debt reduction and all you need to do is call your credit card company. Or, if you’re unsure of your negotiation skills just bring in someone like National Debt Relief.
Their cost is roughly 25% of the amount of debt they get forgiven so it’s a pretty low-risk deal since it costs you nothing if they can’t help.
Did you know that credit card companies will forgive some of your debt if you’re in trouble? Imagine reducing a $10,000 bill to $4,000 just by asking. National Debt Relief negotiates on your behalf.
Cutting Costs: The Big Stuff
If you are thousands of dollars in debt, making coffee at home and bringing your lunch to work aren’t going to be enough to fix the situation.
We’re going to do those things too, but they aren’t enough. You need to concentrate first on the significant expenses.
Reduce your interest rate
If you have credit card debt, your interest rate may be above 20%. In that case, you can easily refinance with Credible and get a rate as low as 4%.
That would cut your interest payments in half.
It’s shockingly easy so if you’re a hardcore procrastinator than just give yourself 15 minutes to create some breathing room in your monthly budget.
Get your rate from every platform, for free, and it doesn't affect your credit. Rates as low as 3.99% APR with autopay.
Housing
The rule of thumb is that your housing expenses should be no more than 30% of your income. But not all of us are adhering to this rule. More than a quarter of Americans are paying 50% of their income on housing. If you’re among them, it will be almost impossible to get out of debt and start saving for your future.
Even if you are at 30% or under, if you have debt, this needs to change. You have a couple of options; find a cheaper home, get a roommate, move in with your parents, or move to a place with a lower cost of living.
Moving towns may not be practical for everyone, but if you’re living in an area where housing costs are prohibitive, and you’re in a profession where you’re not ever going to be making enough money there to get under that 30%, it’s something you need to consider.
I know it’s fab to live in New York City or Los Angeles or San Francisco but if you’re going to be forever in debt and never able to retire, it’s not worth it. I know it takes money to move so you can choose from our other options; finding a cheaper place, getting a roommate, moving back in with your parents until you’ve saved enough to make a move.
If your debt is not that high or if you’re in debt now but your career and salary will advance within your field, you don’t have to do anything as drastic as pick up and move, but you still need to cut housing expenses so consider those options mentioned above, but you can also consider another.
If you’re in a desirable location, rent your place out to Airbnb. Even if you just crash with a friend for one weekend a month, you could bring in a couple of hundred extra dollars, and that will go a long way to paying off your debt.
How much you can make with Airbnb varies based on a lot of factors, but nearly 50% of users make more than $500 a month.
Transportation
Getting from place to place is likely our second most significant expense. Even if you are lucky enough to live in a city with good public transport, it’s still not free.
A monthly Metro Card for the NYC subway is $116.50. That might seem like a bargain if you are paying a car payment and the cost of gas in the burbs, but remember, NYC cost of living is expensive!
Some employers subsidize the cost of a public transportation pass or allow you to use pre-tax money to purchase one. Ask your HR department if they have any such programs available.
Experiment for one week, if you are a two car family, have your partner do the same. Write down every car trip you make. At the end of the week, go over the list. Are there are trips that could be cut out by planning errands more efficiently? Any trips that could be made by bike or by foot?
How many trips could you and your partner combine? Can you carpool to and from work?
If you’re a two-car family who is struggling with debt, cutting down on one car can make a big difference. It might be painful but it your debt is an emergency.
It’s convenient to have two cars but how is it necessary? What would you do if one car was totaled and couldn’t be replaced right away? Do that and sell the other car. Not only will you get rid of a car loan but the cost of insurance too.
Walking or biking to work have benefits beyond just saving money too. More exercise, less pollution, less aggravation. When I worked in an office, I always walked to and from work. Sometimes as much as 45 minutes each way and in all kinds of weather. Such was my mania to avoid giving the MTA one cent I didn’t have to give their crummy service. And to save money of course.
Food
If you keep a budget, and you should, you’ll probably see this category as one of your biggest money hemorrhages. If you aren’t tracking your spending, start now. You’ll likely be surprised and maybe horrified at how much you spend here.
Maybe you don’t like to cook; some people don’t. How have you been eating out a lot? You probably also don’t like cleaning, doing laundry, or running errands. But you still do it because it’s part of being a grown up. Think about it; you could outsource those other things like you’ve been outsourcing feeding yourself.
So why don’t you? That would be a massive waste of money.
Well, how is eating any different? It doesn’t so knock it off! I won’t even tell you that you have to eat healthy, although you should, and you can go affordable.
Buy lots of frozen dinners when they’re on sale, buy lots of Ramen, whatever. But you must start eating at home and taking your lunch to work.
Go to your fridge, freezer, and pantry and see what you can use up before you buy more groceries. If you have a weird assortment of things, you can use a site like My Fridge Food to turn those ingredients into a meal. Think of it as an episode of Chopped!
Once you’ve eaten your kitchen clean, you’ll need to go food shopping, and you’ll need a meal plan. Planning out your meals for the week not only keeps you from buying things you don’t need, but it’s what makes it possible to batch cook.
Batch cooking just means cooking a lot of food at once, so you have leftovers for work lunches and for later in the week.
Before you plan your menu, sign up for Ibotta. Ibotta brings coupons into the 21st Century. It’s an app that gives you cash rebates right from your phone. They have partnered with store all across the country to offer products at discounted prices.
After you buy the products, you selected on the app from participating stores you take a photo of your receipt and send it to the site. They match the items you bought to the rebates they offer, and the cash is deposited into your Ibotta account within 48 hours.
Take a look at the offers on Ibotta and your grocery’s weekly sales flyer. Plan your meals around the items you can get on sale. If you spend an hour or two batch cooking on the weekend, you can have plenty of meals for the week. Eat the first batch and freeze the second.
We’re trying to save money but if you don’t already have one, buy a slow cooker. They make batch cooking easy because once the food goes into the stove, you don’t have to do anything else.
Portion out your batches, so you just have to grab a container in the morning on your way out the door, so you don’t have to buy lunch.
Of course, you are going to go out to dinner sometimes, and that’s okay as long as you have budgeted money for it. Use the app Seated to make reservations. Each time you complete a reservation, you get a $15 credit for Uber, Amazon, or Starbucks.
This free course outlines a proven framework that thousands of people have used to eliminate their debt, develop better money habits, and start building a secure financial future.
Understanding The Whole Picture
First thing is first. You need to sit down and figure out exactly how much you owe on your debts, how much is going out, and how much is coming in. If you don’t have a Personal Captial account, you need set one up. This is the easiest way to see your overall financial picture.
Personal Captial has free financial software and tools to track your personal finances. You can easily manage your entire financial life in one place and reach your financial goals faster.
Budget like a business and focus on your cash flow. In addition to their budgeting software, they have an awesome suite of tools to help you optimize your investments. Did we mention it's free?
Their software will help you to develop your long-term financial strategy, calculate your net worth, set a budget, manage investment accounts, and plan for retirement.
It might be a little scary to tally up how much debt you owe, but it’s the first step in eliminating it. Compare how much is going out (all of your monthly bills and expenses) and how much is coming in (all of your income) just using the minimum payments on the debts, not the totals.
Cutting Costs: The Small Stuff
This is only for those people in debt. If you’re just looking for more money to invest or save, I don’t like to advise people to watch every cent and never buy little things like coffee on the way to work. But if you are in debt, emergency.
So you’re going to have to watch those little purchases that add up. Go through the expenses in Mint. It’s this little stuff that can add up and that can be eliminated when you have a debt to pay off.
Daily Habits
The daily coffee-buying habit gets a lot of grief, and to me, it’s well deserved. Don’t you people have coffee makers at home?!
I have not left my house without drinking coffee first in 25 years. Not once! Not even when I had early morning surgery scheduled and the doctor told me not to. I still sneaked half a cup to avoid a withdrawal headache.
So I don’t understand people who swear they can’t function without coffee but manage to shower, dress, and leave the house before they buy some of the way to work. No more Starbucks (unless it’s from Seated).
Even if you’re a coffee snob, buy the best machine, beans, whatever else you require and make it at home. You will still be spending less. But really, Cafe Bustelo makes a tasty cup of coffee and is about $5 a brick. Get over yourself!
Coffee is an easy target for this kind of spending, but it manifests in lots of other ways. Magazines at the check out line, drink when you get gas, a new lipstick. None of these things alone will break you, but chances are, more money than you realize is going to this sort of stuff. Money that should be going into debt.
Shopping
Almost anything you can buy new, you can buy used. And for less, often a lot less. Do you have a rich person’s neighborhood near you? Go to the thrift stores there. Rich people get rid of a lot of stuff, some of it never used, worn, or even opened.
Clothes, appliances, kitchen items, all of this you can find at a thrift store. Sure, you need more time to look through random things to find what you’re looking for and it takes longer than running into Target and grabbing one off the shelf, but you will pay a lot less.
You shouldn’t be doing any clothes shopping, but if there is a wedding or similar event and you don’t have anything to wear and need something nicer than you can find in a typical thrift store, you can check out Poshmark which sort of online thrift store. You’ll find higher quality items, but the prices are still affordable.
A lot of us already do a lot of our shopping online because it’s often cheaper than shopping at brick and mortar stores, but there is a way to save even more when you shop online.
When you join Swagbucks, you can get cash back when you buy online from more than 1,500 retailers including places you probably already shop like Amazon, Target, and Starbucks. You earn points for each dollar you spend and also get exclusive coupons and deals exclusive to their shoppers.
You can redeem your points for gift cards or get cash back through PayPal. We did an in-depth review of Swagbucks. There are other ways to make money on the site too.
Receiving automated refund checks is great, it’s like finding money on the ground. As it turns out, stores owe you money all the time, but they don’t pay if you don’t ask. That’s where Earny comes in. They automate everything. Price drop? Get cash back for the difference. Deliveries arrive later than advertised? Get cash back. Effort required? Zero, just how we like it.
Subscription Services
You might be spending money and not even realize it. That old gym membership, the magazines still being delivered to your last address because you never updated it, the fruit of the month club. It’s a hassle to cancel all those things, but it’s worth it.
You don’t have money to be throwing away even if it’s $8 her and $15 there. But now, you don’t have to do the work to save the money! Create an account with Trim. They will go through all those recurring charges and cancel the ones you no longer use. For free!
They also offer cash back in a few categories too including restaurants, groceries, and movies. You link the card you use to pay for those things, and you get $1 back automatically when you spend at least $5.
The Medium Stuff
There are specific products and services that have so many providers that we probably aren’t getting the best deal we could. It pays to shop around.
Utilities
How many television shows do you watch? It’s probably just a handful sprinkled across just a few channels. But you’re paying for dozens and dozens of channels if you’re paying for cable.
Become a cord cutter.
There are all kinds of internet services you can use to watch the shows you like, Amazon, Hulu, Netflix, and Sling TV and at a fraction of what you’re paying for cable.
If you have auto or home owner’s insurance you should shop around for the best price. There are so many insurance companies competing for your dollar that you probably aren’t currently getting the best deal you could. You can use Policy Genius to shop around.
The same is true for cell phone carriers. If you’re paying too much for your cell phone, check out Ting. You get the same coverage you get with the big carriers with a much smaller price tag. The average Ting bill is just $23/phone/month. Damn.
Interest Rates
If you have student loans, you may be able to get a lower interest rate by refinancing. Earnest is a platform that uses technology to bring low-interest loans to high-potential people. They look at things like your savings patterns, investments, and career trajectory—to give you the lower rate you deserve.
If most or all of your debt is credit card debt, you know how hard it can be to ever make any progress when the interest rates are so high. Getting that interest rate down will save you money and enable you to get out of debt more quickly. There are a couple of options for getting your credit card interest rates lowered.
The best option is a balance transfer credit card. You open a new credit card that has a period of 0% interest; some offer that rate for as long as 24 months. You transfer the balance from your current high-interest cards onto the new card. You have that period to pay only the balance on the card with no interest charges.
You must pay off the entire balance before the 0% APR period ends though. If you don’t, the remainder will be subject to the new interest rate which could be higher than the price you were paying on the previous card.
Not everyone will be approved for a balance transfer card but if you are, indeed buckle down and get that balance paid off.
If you can’t get a balance transfer and get a debt consolidation loan from Credible.
People lend you a lump sum that you can use to pay off your credit cards. A loan like this does have an interest rate (that’s how the lenders make a profit), but it will be far less than the interest rate on your credit card.
If you’re not eligible for any of the above, call up your credit card companies and ask for a reduced interest rate. Be honest, tell them you’re struggling with the payments, but you have a plan to pay off your debts but could use some help in the way of a lower interest rate. Not all of them will agree, but you might get lucky, so it doesn’t hurt to ask.
Fees
There is so much competition between banks that you should never pay any bank fee; a low balance fee, maintenance fees, ATM fees, overdraft fees. Part of the way banks make money is by nickel and diming customers with these little charges.
Bust the banks by switching to an online bank like Chime. Chime has virtually no fees. When you join Chime, you’ll be sent a Visa-branded debit card which is connected to your Chime spending account.
Not only do you avoid annoying bank fees, the Chime card is a cash-back rewards card. Rewards are something traditional bank debit cards don’t offer so all the more reason to switch to Chime.
Make Some Extra Money
It’s easier to cut spending than make more money but making more money usually generates more significant numbers and if you’re in a lot of debt, working only one job unless you have significant family commitments is not an option. You need to have at least one additional income stream until you are out of the woods.
Work Some Overtime
This won’t be an option for everyone but if you’re paid hourly, speak to your boss and see if you can pick up a few extra hours. Or if you’re job has shifted, check if the less desirable shifts pay a bit more per hour. Working nights isn’t fun, but it could make you some extra money without doing any more work. Maybe less if there’s no one watching!
Take A Part-Time Job
Do you have weekends free or a few hours in the evening? This might not be realistic if you have a family, but if you’re single, put your social life on hold for a few months and pick up a part-time retail job. Even if nothing is available now, lots of retailers take on extra workers around the holidays.
Start A Side Hustle
This doesn’t have to be anything complicated. If you want to grow your own business, great, but if you just need some extra cash, you have lots of options. These kinds of side gigs offer a lot of flexibility that a traditional part-time job doesn’t.
Do you like kids? Make babysitting your side hustle by signing up with Sittercity! Parents post jobs on Sittercity for everything from a full-time nanny to the occasional date night sitter. You can apply to the postings, meet the family and get hired. The average pay for a sitter is a little over $12 an hour.
Drive for Uber. The hourly pay after expenses varies from city to city, but you can expect to make around $10 an hour. In larger cities, it will often be much more and in smaller cities, sometimes a little less.
The appeal of Uber is that you can set your schedule and there is no commitment. You can work your regular job and make your $100 in just a few hours on a weekend or some evenings.
Selling your extra stuff, stuff you buy cheap at garage sales or discount stores or selling things you make is a great way to make extra money. You don’t have to go to the trouble of having your garage sale. You can do it all online.
Shopify is a site that makes selling stuff easy. They have ready-made templates, so you don’t have to spend time designing your store. They also have a lot of tools to help you do things like create coupons and promotions, process payments, handle returns, and share your store on sites like eBay, Google Shopping, Facebook, and several price comparison sites like Nextag, Bizrate, and PriceGrabber.
Just spending a few hours a week on your Shopify store can pay off.
Hustle in Your Down Time
When you’re paying off debt $2 here and $3, there can help. Don’t turn your nose up at those little amounts. These are some great ways to make a few extra dollars or save a few extra dollars in your spare time. And you have a lot of it since you’re not going out spending money.
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Grow Up And Budget
Is what’s coming in more than what is going out? How much is left over at the end of each month? You’ll have at least that amount to start paying off debt. We want to make that number higher and we will, but it’s good to see we at least have some extra money after expenses.
What if there is more going out than coming in? We’re going to fix that. That can happen when you start relying on credit cards and is probably at least part of the reason you’re in debt.
Now we have all of the numbers we need to get started. We know how much we owe, what our expenses are, and what we have coming in. Now we need to keep track of your budget.
For the time being, the only budget in the minimum payments on your debts, the amount you’ve (hopefully) already been paying. If you haven’t been paying even the minimums, budget those amounts in now.
Also budget in some money for non-essentials like going out to dinner or a movie, a few drinks at happy hour.
Yes, your debt is an emergency, and if you were a robot, you would throw every dollar that wasn’t meant as an essential expense at it. But we aren’t robots, and most humans can’t deprive themselves entirely for long stretches without going off the rails.
Getting out of debt is like losing weight in that way.
If you never allow any wiggle room for yourself, you can’t stick to the program. So let some money in your budget for non-essentials.
We’re going to start finding extra money and making more money to get rid of that debt as fast as we can.
Don’t Let It Happen Again
Now that you know how much is coming in and going out, make sure you live below your means.
If you don’t think you will have the discipline to not overspend on your credit card, Tally can help you out.
They’re an automated debt manager (kind of like what robo-advisors do in the investing world).
How does it work? Tally analyzes ways to pay off your credit cards. You’ll get a custom report with recommendations based on your monthly spending habits and credit card details (e.g., APR).
You’ll set goals and track progress. If you decide to pay more each month, Tally shows you how quicker (or slower) it’ll take you and how much you could potentially save.
Tally is your own fee-free, personal debt manager that extends you a line of revolving credit (with a lower interest rate) and helps you pay off debt fast. It scans your linked cards and pays off the one with the highest APR first.
Now Make Your Plan
You know how much is coming in and going out. You’ve reduced some of your expenses, and you have some extra money coming in. Set up your budget in Mint and stick to it. Check it every week to see how much you have left to spend in each category.
In our original budget, we only set aside the minimum on all of our debts. We need to work out a plan to get them paid. You can’t efficiently pay off debts by throwing money randomly at the balances.
There are two methods that will help you to do it quickly; debt snowballing and debt stacking.
We did a full explanation here. The TL: DR version is that to snowball you list your debts in order of lowest dollar amount owed to highest dollar amount owed. You pay every extra penny you have toward the weakest while paying only the minimum monthly payment on the rest.
When one credit card balance is paid, you take the money you were paying for it and start paying it on the next on the list until it’s paid off. You continue doing this until all the debts are paid.
Stacking means you list the debts in order of highest interest rate to the lowest interest rate. You follow the same payment method as we did in the snowballing method.
Which should you choose to pay off debt faster? That’s up to you.
The stacking method will save you the most money because you pay less in interest since you are paying the highest interest debts first. But it can be psychologically rewarding to use the snowball method because it allows you to kill off smaller debts relatively quickly.
Whichever method you choose, you are still concentrating on just one debt at a time, and that makes this whole process seem less overwhelming. It’s like losing weight. You don’t look at the end goal; you look at the weekly or monthly goal. You aren’t losing 100 pounds; you’re losing five pounds a week.
Decide which method you are going to use. Make an Excel spreadsheet or just a notebook to list all of your debts and each payment you make. It will feel good to see those numbers getting smaller.
Now you need to choose a deadline to pay your debt off. You want to be realistic; you aren’t going to pay off $20,000 of debt in two months if you’re not making a lot of money. But don’t give yourself too much time either. You don’t have ten years to do this. Your debt is an emergency.
I think a good place to start is to divide the amount you owe by 52, the number of weeks in a year. Now you can see how much you need to pay every week. Because you’ve been avoiding your debt for so long, that number might be less than you were expecting.
It might be more. If it’s a little more each week. You have to hustle to make extra money or tighten your belt even more to reach it. If it’s a lot more than you were expecting and more than you can find right now, either through cutting expenses or making more money, add another 12 weeks, three months, to your calculation.
Most debts only require a monthly payment, but I prefer to pay them off each week. It gives you momentum, and it keeps you from using money that should be going to debt for other things. You can’t spend it if it’s already gone.
On your spreadsheet, make a line for each week until the debt is paid. Choose the day of the week you will make the payment and put the date for each weekly payment in the column for the first debt you’re going to focus on.
Each week when you make a payment, subtract the amount, so you have a new balance. The point of this is to see those numbers getting smaller each week. It’s motivating. We also didn’t list dates for the second debt on the list because as we get to the end of each debt, we might reach just a little further so we can pay it off a week or two earlier.
The closer you get, the more motivated you are just to kill that debt even if it means eating peanut butter and jelly for a week.
This might sound obvious, but you can’t continue to charge money on your credit cards while you’re trying to pay them off. Hmmm. But you don’t like using a debit card because it doesn’t have the rewards or protections that most credit cards do.
As you pay off each card, you might be tempted to close them. Don’t do that. It hurts your credit score. Instead, put a small, recurring monthly expense on each card like your Netflix payment and set it to auto pay. This will keep the card open; some credit card companies will close a card for lack of activity.
It Won’t Last Forever
I know none of these suggestions are fun or easy. No one wants to move to a smaller apartment, never buy coffee out and work every weekend. But, what is our refrain? Emergency.
You have made a plan; you are making sacrifices, you have extra money coming in. Stick to your plan. If you have a bad day or week, don’t give up. It took time to acquire this debt, and it will take some time to pay it off.
The bottom line is, it’s going to be hard work but you will, and you will strangle the debt that has been strangling you.
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Candice Elliott is a substantial contributor to Listen Money Matters. She has been a personal finance writer since 2013 and has written extensively on student loan debt, investing, and credit. She has successfully navigated these areas in her own life and knows how to help others do the same. Candice has answered thousands of questions from the LMM community and spent countless hours doing research for hundreds of personal finance articles. She happily calls New Orleans, Louisiana home-the most fun city in the world.
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