Getting out of debt is never an easy task, but it’s infinitely harder when you’re on a low income. As disheartening as it may be to see the interest charges racking up each month, know that you’re not alone and that it’s absolutely still possible to get out of debt on a low income.
Stop Comparing Yourself to Others
This is both the hardest and easiest step, and one that’s absolutely vital to undertake before you can even begin to get a handle on your debt. When you’re looking at stories of other people who have gotten out of debt faster than you, you have to remember that you’re not them and that comparing your situation to theirs is futile. You have no idea what the people you’re comparing yourself to are dealing with privately. You don’t know what their financial or familial situations are like, and you don’t know what kind of help they might be getting from their parents, partners, or friends to help them through.
Just focus on the reality of your own situation and think about what you can do to help pull yourself out of debt. Accept what’s happened and don’t let bitterness or envy affect your ability to move forward.
How Much Do You Owe?
As cathartic as the mental image of aggressively throwing money at the problem might be, you can’t realistically start tackling your debt without a concrete plan in place. In order to do that, you need to know A) How much money is coming in each month, B) How much money is going back out again each month (for things like bills, rent, food etc) and C) How much is left over.
You also need to know exactly how much money you owe and how that debt is spread out across your various credit cards, loans, and lines of credit. Make a chart that lists every single source of credit you have access to on the left-hand side. Across the top, have four corresponding columns that say: Total Debt Owed, Total Available Credit, Interest Rate, and Minimum Payment (see sample chart below).
Once you’ve completed the chart, you’ll be able to get a good sense of your debt at a glance and you’ll be able to come up with a realistic deadline to pay it all off. Having everything organized in one spreadsheet will also help you feel like you’re taking control over your money, will take the guesswork out of it, and will hopefully alleviate the anxiety that comes from not knowing exactly how deeply in the hole you are.
Use your completed chart to figure out the best approach to take when tackling your debt. Remember to factor in credit utilization (how close to your credit limit are you?) and interest rates. The higher the interest rate, the faster the debt accumulates and the harder it is to pay it off (especially on a low income).
Figure Out a Strategy
From the snowball and avalanche methods of paying off your debt to balance transfers, there are a number of options worth exploring once you’ve got a handle on your financial situation. If your debt is spread out across a number of different credit cards with high interest rates, one option that can be particularly helpful is debt consolidation. Debt consolidation means you take out a loan with at a significantly lower interest rate and use it to pay off all of your existing debt. Once those debts are paid, you can focus on just paying down your new consolidated loan. If you’re interested in debt consolidation, start by doing research online to see what some of the best rates are. You can also book an appointment at your local bank branch and inquire in person about the options available to you.
Depending on how severe your debt is, you might also want to consider entering into a consumer proposal. While bankruptcy is always an option in the direst of circumstances, it really should be a last resort when you’ve exhausted every other option.
Cut any Unnecessary Expenses
This is going to be the part of the process that’s the most difficult to cope with in the short term, but just remind yourself that it’s only temporary (and will help alleviate the burden of paying down debt on a low income). Now’s the time to cancel any gym memberships or streaming services you no longer use but forgot about (as well as any other grey charges you’ve let linger for too long on your credit card statements).
Cut down on gas and try walking, cycling, or taking public transit more often (if that’s a feasible option for you). Make enough food at home so you have leftovers that you can bring for lunch to work the next day. Organize your old books, CDs, and DVDs, and see what you can sell. Check Groupon and other bargain hunting sites to see what deals you can get and look into what rewards programs exist to help you save money on gas and groceries.
It is absolutely possible to get out of debt even on a low income! Just remember that it’s not going to happen overnight and focus on what you can do in the moment.
Still feel overwhelmed by the weight of your debt and need some extra help getting a handle on things? Book an appointment with us today!