9 Tips on How to Pay Off Debt Fast With Low Income

Pay off Debt Fast With Low Income

If you’re reading this article, you understand that learning how to pay off debt fast with low income can be daunting. Paying off consumer debt at any income level can be difficult. 

Do you feel like you don’t have a prayer to get out of debt? 

Trust me, I feel you and many others do too.

That’s why you need TRIED and TRUE ways to help you reach your goal. No matter your income level, having a defined strategy on how you want to pay off your debt and ultimately meet your financial goals can propel you into the next stages of your financial journey. 

The following tips will help you understand some of the methodologies you can use in your strategy to pay off debt fast with low income.

So, where to start?

I’m going to list these in order of importance from my perspective. The reason is that if you follow these initial steps, you may not have to resort to some of the steps toward the end.

Review your credit report

Review Your Credit Report

Basically, you need to understand how much you owe. Checking your credit report can be a great resource to do that. 

Why?

Well, one reason is that your credit report should give you an idea of your debt obligations. The other reason is that there could be debt on your credit report that may not be yours. 

I certainly wouldn’t want to start making a plan to pay off debt that wasn’t my own, and I know you wouldn’t either!

And here’s the thing, there are times when your credit report can be wrong! If that happens, you can dispute the account and have the balance removed or corrected to reflect the proper amount owed to the creditor, if there’s a balance at all.

This method could potentially save you hundreds, if not thousands, of dollars of unnecessary payments.

The good news is that you can check your credit report annually for free at annualcreditreport.com.
I provide more detail on identifying your sources of debt in this article.

Make bi-weekly Payments

Make Bi-Weekly Payments To Pay Off Debt Faster

What if you could shave months or even years off your auto or mortgage loans with one simple rule? Well, guess what? Making bi-weekly payments can help you do just that. 

So, how does it work?

It’s pretty simple, actually. All you need to do is call your lender and set up a bi-weekly payment arrangement. They will walk you through all of the details and requirements from there.

The beauty of bi-weekly payments is that you’re only paying ½ of your payment every two weeks instead of one entire month’s payment at a time. 

For example, if your regular payment is $100 per month, your bi-weekly payment would be $50 every two weeks.

Make Bi-Weekly Payments to Pay Off Debt Fast with Low Income

But wait, there’s more.

Setting up bi-weekly payments does two things to help you pay off debt fast: enables you to pay one full extra payment each year, AND it helps to reduce the amount of interest you’ll pay on your overall debt.

Using the example above, bi-weekly payments enable you to make 26 payments of $50 each in one year, which is a total of $1300. If you had made $100 payments each month instead, you would have only paid a total of $1200. 

$1300 – 1200 = $100

This is how you’re able to make one extra full month’s payment in the year. 

Here’s the fun part, that extra $100 ends up paying off more of the principal on the debt you hold. The more you’re able to pay toward the loan’s principal, the lower the interest calculated. Lower interest payments mean you’ll pay off the loan faster.

This is an excellent tactic for someone looking for ways to pay off debt fast with low income because it doesn’t take a lot of extra money to make a significant impact on your debt obligations. 

Negotiate interest rates to pay debt faster

Negotiate Interest Rates to Pay Off Debt Fast with Low Income

So, while you’re on the phone with your lender or creditor, how about asking them to lower your interest rates? Didn’t know you could do that, huh? You absolutely can. Now, that’s not to say they’ll do it every single time, but it’s certainly worth asking about. 

If you’ve been with an institution for a long time and they want to keep you around as a customer, they’ll typically be willing to give you some type of offer to help with interest rates or payments. For example, they may offer a low-interest balance transfer offer that you can use to shuffle debt (more about that later).

The key is to be in good standing with the institution and have a good track record of making your payments on time and in full. 

If it applies to you, you could even take this a step further and negotiate items that have gone into collections with the collection agency. Once a debt goes into collections, you work with the collections company from then on. 

Sometimes you may be able to contact the collections agency and negotiate a settlement. That means you both could agree that you’ll pay less of what you owe as long as you settle the debt right away.

Shuffle debt around to pay off balances faster

Before we get into this next tip, I’m going to give a little disclaimer here. This method of shuffling debt around to pay it off faster takes a lot of discipline. The worst thing you could do is move debt around only to build it back up on a different card. Keep that in mind as we walk through this section.

So what exactly do I mean by shuffle debt?

In the simplest terms, you would move debt between credit cards or other forms of credit if you have them to get the best interest rates. 

For example, let’s say you have two credit cards, one with a $1000 balance and one with a $100 balance. Both have interest rates of 15%. However, the card with the $100 balance has a 0% balance transfer promotional offer you can take advantage of. 

You could “shuffle” the debt and transfer the $1000 balance to the credit card with the 0% balance transfer offer. Now, instead of paying 15% interest on that $1000, you wouldn’t pay any interest during the months listed for the balance transfer offer. Lower interest payments mean you’ll pay off debt faster.

As I mentioned above, you have to be very careful making these types of moves. For one, you don’t want to start running up debt on the credit card you just paid off. That would be silly, so don’t do it.
Also, you want to make sure you understand any fees, charges, or terms associated with the balance transfer offer you used. I go into more detail about promotional offers in Understanding Deferred Interest vs. Zero Interest Promotions.

Refinance credit with high interest rates when you can

Refinance to Pay of Debt Fast with Low Income

Refinancing is another tip to which I’ll add a warning. You’ll need to make sure that it won’t end up costing you more, in the long run, to refinance vs. just paying off the debt with the current terms before you commit to refinancing. 

Refinancing high-interest rate credit to pay off debt fast can help tremendously under the right circumstances. But in many cases, you may have to pay fees in order to refinance your loan terms. If the fees will cost you more than what you’re saving in interest payments, then it’s simply not worth it.

Also, refinancing is truly only beneficial when you’re in the earlier stages of paying off the loan. Financing companies get their money upfront, which is why you can be paying and paying on debt and feel like you don’t see the balance move.

Because of this, if you wait until later in the loan cycle to refinance, you will have already paid off a huge chunk of that interest cost. By then, it doesn’t make sense to refinance the balance you’re left with because you’re no longer paying interest on the remaining balance.

Take tax deductions throughout the year

Get More Money Now Instead of Waiting for Tax Refund

Let me pose a question. Would you give someone an interest-free loan so they could use the money to earn more money while YOU build up interest and go further and further into debt? 

If your answer is no, then stop letting the government keep your money all year, interest-free, only to give you a huge refund at the end of the year of money they already owe you. Take your money now by changing your paycheck deductions so that you’ll break even at the end of the year. 

Sure, you may not get a huge refund at the end of the year, but a tax refund only means the government is giving you BACK the money that you should have never paid in taxes.

Let that sink in.
Of course, this is something you should discuss with your tax professional, but in the meantime, head over to irs.gov for more on how to get your money during the year.

Cut expenses

Cut Expenses to Pay Off Debt Faster

Ok, ok, I struggled with whether or not to even include these last two tips because, well…duh. I understand that cutting expenses when you are already earning low income can be difficult, if not downright impossible. However, my purpose for highlighting this is to remind you to always be thinking of ways to cut expenses when you can.

Once you’ve created a budget that you’re sticking to, you may start to notice more and more items that you don’t need or that you don’t feel are as important as you once thought. When that happens, don’t second guess yourself; just eliminate those costs.

The more you’re able to reduce your expenses, the more you’ll be able to contribute toward paying off debt.

Another thing about cutting expenses is that sometimes you may not even have to cut them out entirely to see a benefit. Perhaps you can reduce your cell phone plan, or sign up for automatic payments for which you’d receive a discount for doing so, or cut out some of your cable channels to reduce your bill, or get new insurance quotes, etc.

And it doesn’t stop there! You could go as far as using coupons for groceries, taking advantage of cashback offers with certain companies through your bank or credit card company. Honestly, there are a ton of possibilities to explore. 

The best way to think about cutting expenses is first to decide what is genuinely negotiable. If you believe the cost is negotiable, meaning you could live with or without it, then put that expense on the chopping block.

Earn extra money

Earn Extra Money

I know, I know, this may be an obvious one. But think about those things sitting in your closet or packed away in your garage that you purchased on credit and never used. Why not sell that stuff and at least get some of your money back? 

These days there are plenty of online platforms that will allow you to sell used items easily. Ditch that stuff soon so you can get on with your financial goals!

It doesn’t have to stop there, and earning extra income doesn’t have to be time-consuming. There are part-time, low commitment jobs everywhere these days. Identify your skills and use those to make extra money. 

Sometimes you can be sitting on a goldmine of skills that could earn you hundreds of extra dollars a month. Are you creative? Are you good with organizing? Are you good at cleaning? Seriously it could be anything! 

If you’re stumped on finding ideas for ways to earn more money, check out a blogger that I follow who has identified plenty of great opportunities to earn extra cash.

Use the Snowball Method to Pay off Debt Fast

Use the Snowball Method to Pay Off Debt Fast with Low Income

This method is one of my personal favorites. 

Why?

Because this is a method, I’ve used that’s yielded the best results.

(an alternative to this is the avalanche method which promotes paying off debt with higher interest rates first)

So, how does it work?

It’s actually pretty simple. So simple, in fact, I’ll just give you the bullet points.

The snowball method explained

  1. List debts from smallest to largest
  2. Make only minimum payments on all debt except the smallest
  3. Pay as much as possible on the smallest debt
  4. Once the smallest balance is paid in full, take the money you were paying for that debt and apply it to the second smallest balance plus the minimum payment
  5. Repeat until the debt is paid in full

See, simple, right?

Ok, maybe not, but here’s an illustration to help you visualize the potential results of the snowball method.

Debt Snowball Explained

As you can see from the chart above, the total amount paid toward debt obligations each month never exceeds the total for minimum payments ($90) + the total allocated toward paying down debt ($200). 

In each month, the minimum payments are met first, and then the extra $200 gets applied to the debt obligation you’re focusing on (the credit card with the lowest balance in this example).

Final Thoughts on How to pay off debt fast with low income

Earning low income and being in debt doesn’t have to be the death sentence it may feel like. Being in debt at any income level can seem overwhelming, but the idea of paying off debt fast with low income can seem outright catastrophic. 

Whatever the situation, remember how you feel at this moment. Think about how you got into debt and make a plan to avoid getting back into debt.

Use the tips above to get you started. In the meantime, check out other money management and debt management tips we discuss on this very site. Eventually, with a solid plan and the right mindset, you’ll get there and will be closer to reaching your long-term financial goals.

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Krystal Norwood-Morales, MBA, CFEI

Krystal is a Certified Financial Education Instructor and founder of Wild About Wealth, LLC. As a financial literacy advocate, she writes posts geared toward helping others improve their financial education and build generational wealth.

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Krystal Norwood-Morales, MBA, CFEI

Personal finance blogger

As a certified financial education instructor and financial literacy advocate, my mission is to teach young adults how to build generational through financial education. So let’s get WILD about WEALTH!

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