9 Steps To Get Out Of Debt On A Low Income

Back in 2016, I had an epiphany…

I needed to be more fiscally responsible and I needed to pay off my debt.

At the time, I was so close to being in the negative each month that I couldn't cover a $300 emergency.

However, I had no clue where to start. I had dabbled around with trying to pay off my car and saving more money but I often found myself making my money issues worse.

At the same time, I knew that if I wanted to have any sort of lifestyle that I controlled, I needed to become more serious about getting out of debt. But here was the kicker:

I didn't make a lot of money.

As a teacher, I was wondering, how do I get out of debt with a low income?

Getting out of debt starts with wanting to.

Before you can create control, options, and time, you need to manage your debt. The biggest step to getting out of debt, regardless of how much you make is wanting to get out of debt.

This metaphor might sound a little intense, but if you wanted to get out of debt as badly as you wanted to breath when you were dunked in the pool as a little kid… you would figure it out.

In order to GOOD (Get Out Of Debt) it needs to be a focus. If it means starting an Instagram handle to chart your journey or starting a side hustle to make extra money, then that is what you got to do.

What seems to be the biggest asset for those looking to get out of debt (even if you're on a low income) is your desire. So start with WHY you want to get out of debt and set 1 or 2 big goals to keep you going.

Once you have your goals, here are just a few simple steps to take in order to get out of debt on a low income.

Related: Money Moves You Need to Make ASAP if Your Earn Less Than $50,000

1. How much do you make?

The first step for accomplishing any financial goal is completing a financial audit on yourself. On your piece of paper with your goals or on an excel sheet, write down the average monthly income you bring home after taxes.

For example, after taxes, Albert makes $2,000.

Note: If you're a person on a low income who serves tables, in sales, or doesn't have consistent hours, take your last three months' income, add it up and divide by 3 to get a rough average. It is vital when you're paying off debt to know where every dollar is coming and going!

2. Get Out of Debt BUDGET

Step 2 when it comes to getting out of debt is to use the “Get Out Of Debt” budget forecast sheet. In reality, any budget sheet will work but the key is to actually sit down and write it out.

The simple act of writing will increase awareness and bring attention to where your money is going. Keep in mind to always have the following categories identified your budget:

  1. Fixed expenses – rent, bills, payments, housing
  2. Variable expenses – like food, cable, spending, entertainment, gifts
  3. Income

Right now: Call your credit card company and ask them to remove any late fees or interest charges for the last 90 days – tell them you got a better offer. You'll be surprised that they just might, it is worth the shot!

3. Lower your monthly expenses.

So you're looking at how to get out of debt on a low income and you now have a budget.

Now you need to look at your income and see where your money is going. then look at your monthly outgo (Fixed and variable expenses combined).

It is OK if you're in the red (You spend more then you make) at this point, there are still a few steps to go. First thing is first, where can you make immediate slashes to your variable expenses?

For example, you can:

  1. Get rid of cable
  2. Cancel your gym membership
  3. Slash your entertainment and eating out budget
  4. Stop buying out of impulse
  5. Cancel subscriptions

Overspending on non-essentials has hit an all time high. Food, drinks, and entertainment alone can cost the average adult $225 a month.  If you're looking to manage your food expenses look at meal planning and using rewards points for eating out!

Don't forget to see about adjusting your fixed expenses either, ideas include:

  1. Reducing cell-phone plan
  2. Bundling your insurance
  3. Carpooling or looking for alternatives for gas
  4. Downsizing housing and car (see #8)

At the end of the day, the goal in this step is to untie as much money as possible that was going other places to funnel into your debt. Even on a low income you can always find money in your budget.

Money Pro Tip: Make sure you assess money in relation to percentages. For example, roughly 30% of your income should go towards housing and 15% towards your car. If those are more, it might mean you will have to downsize to clear your debts.


4. ALWAYS pay yourself first when you're on a low income.

pay yourself first to get out of debt

Chances are you will likely need to adjust how you approach money in general. Most people pay their bills, spend their money on things they enjoy, and finally, with any extra, they will pay off their debt.

In reality, it should be the other way around, regardless of how much you should make, the correct order should be:

  1. Pay off your debt
  2. Pay your bills
  3. Use what is leftover for enjoyment & recreation

Please do not misinterpret the above as saying don't pay your bills.

Using your income from #1, the budget you set up from #2 and the money you freed up with step 3, you should have a designated amount of money leftover each month (Hopefully, if not see #7).

Using the number, you can attack your debt one at a time, as the next step describes in full.

5. Attack 1 debt at a time.

Chris Muller from Money Under 30 put it best when he said it this way,

“The only way to tackle your debt is to make more than the minimum payments.”

Sticking with this philosophy, the more you can contribute to one specific debt the better. Instead of trying to pay off 1 credit card, 1 car and a student loan all at one time, focus on targeting one specific debt item.

There are two strategies that typically work best;

  1. Debt snowball
  2. Debt avalanche

Low-income earners should start with the debt snowball to increase their cash flow and get a few quick debt pay off wins under their belt.

6. Use the debt snowball.

Imagine you have 5 small fires and one garden hose. Would it be smart to try to put out each fire at the same time or drown each fire one at a time?

In this metaphor, the small fires are your debt and the garden hose is your income. By drowning one debt at a time, you can free up cash to roll into the next debt item. Thus, your garden hose gets bigger – exponentially!

Use this step by step debt snowball guide to help you start crushing your debt.

debt snowball

7. Create some extra income with a side hustle. 

How would an extra $600 sound right about now to help you attack your debt?

Your rebuttal might be, “Where do you get $600 from?” In order to pay off our debt on a low income, budgeting helps -but making extra money is like pouring gas on the fire.

But where should you start?

You can make an easy $15 a day just by completing surveys (When you're bored at work). However, for a long term side hustle, start by looking at your hobbies and see if there is anything you could do to create income. Ideas include:

  • Gardening = landscaping,
  • Making things = sell services online
  • Working out = train a friend or neighbor
  • See also; 21 Ways to Make $500 Fast

If your hobbies can't produce income and you don't want to walk dogs or rent out your car, the internet provides endless opportunities that can provide extra income.

Each day, there is a freelance opportunity out there for people who have skills using computers. From managing social media adds to graphic design, a simple way to earn extra income on your own time is using a computer. 

Check out this ultimate side hustle list with 50 side hustle ideas!

8. Sell your car

This might not be what you want to hear right about now, but your car is actually one of the big reasons you're in debt.

Owning a car not only occupies a high percentage of our monthly net income, they are also depreciating liabilities. If someone wants to know how to get out of debt on a low income really fast-selling their car is a great start.

Regardless of how much you make, if your monthly car payments are more then 15% (Ideally they should be 10% or less) then it's time to seriously consider downsizing (just avoid these debt solutions).

Just make sure to buy used and to leverage this car buying guide to help you when you sell your car so you can become debt-free!

Personal Note: I sold my 2014 $37,000 GMC Sierra in order to reverse my debt to income ratio and help pay off our student loans. It was hard at first, but looking back it really wasn't that big of a deal!

9. Begin to understand amortization. 

Amortization, or the repayment of a loan principal, is a word you should really get to know more about. Now that I see how amortization charts work, I am a tad bit more fanatical about paying off debt.   

how to get out of debt on a low income

For starters – just play around with an amortization calculator and input some of your debts.

For Example:The average college graduate had $37,000 in student loan debt. Over the course of 10 years they could expect to pay $10,000 in interest. However, if they attack the principal with extra payments using the steps from above they can quickly get ahead and pay less in interest over time.

In the end, getting out of debt boils down to what you want. 

 I think it is important to point out that everyone pays or carries debt for their own personal reasons. Not everyone has to be or is as fanatical about paying off debt as someone else might be.

Paying off debt, even with a low income, doesn't have to be complicated. Just using the steps detailed in this article and taking baby steps will set you on a path to debt freedom.

Remember we all have to start somewhere.

Final Word:

When you're looking to get out of debt on a low income, be sure to avoid all comparison and to take each day one at a time.

It can be very easy to get caught up in the overarching goal of debt freedom and feel an urge to want to “Give up.” Do your best to avoid these feelings by taking small baby steps!

Be sure to think about what you might want- more time with family, travel, options, security – you'll be motivated to stay the course and pay off your debt. 

If you can figure out your reason for accomplishing your personal finance goals, chances are you will accomplish them much faster then you anticipate!!

Q: What is one piece of advice you would add for someone with a low income who wants to get out of debt?

how to get pay off debt on a low income