If you’re having severe debt problems and living on a low income, you might be looking for information on how to pay off debt quickly with a limited monthly income. But deep down inside, you’re well aware of the fact that it’s not so easy, rather quite impossible for you. But, there are people who survived that situation. Their struggle, hard work, and dedication might help you to get over your situation too.
I have talked with some winners of the debt battle recently. One of them told me her outstanding triumph to become debt-free.
My friend Sarah Connor, age 31, told me about her debt battle, which she won in 19 months! She lives in beautiful Northern Colorado with her husband and two furry kids. Her husband owns a garage and she works as an accountant in a construction company. She is the sole person who has a constant and stable income among them. Her husband does not make enough money from his garage, so she has to manage all the major expenses all alone.
Sarah started out with nearly $187k in debt. About $82k of that was her student loans, nearly $6,500 credit card balances, $80k taken as home loan, car loan was $18k. In November 2018, she made her final debt payment and ended up paying off $195k in 19 months. So, practically she paid nearly $8k in total interest.
I wanted to know how did she manage to save that amount with such limited income. She told me all about her hard work and some unique strategies that helped her to get out of debt.
Let’s have a look at what she has done in the last 19 months!
Step 1 – Listed all the debts
People grow anxious when they list their debts. So, they should have enough willpower to face it. She did it too. One day, she decided to make a list of every single piece of debt she owed.
That was the hard first step. But once she did this part, she became extremely confident about becoming debt-free.
Step 2 – Prepared a solid budget
People need to set up a solid budget which they can follow each month. She also did it with a proper plan. This is how she managed to restrict herself from going into debt each month. It is difficult to reduce your total debts if you are continuously piling up new debt each month. Creating a proper budget and following it will be the biggest and most effective strategy to control your finances.
Once you set up a new budget, at the end of the month you will find some extra money to put towards your debts. Gradually, you can get out of debt faster by just paying down some more than the minimum amounts.
Step 3 – Refinanced student loan
Since her student loan accounted for the biggest part of her debt, she started doing some research on student loan debts. She had some good offers from lenders and refinanced her student loans. By doing this she lowered her interest rate to a good percentage. Also, by using the auto-pay option, she managed to get an extra 0.25% interest rate deduction from the lenders.
Interest rates on a student loan were costing her more in the long run. So, by doing this step she converted a high-interest debt into a lower-interest debt and saved a lot.
Step 4 – Set up a debt payment plan
Remember the debt list? Yes, she lined up all her debts from smallest to largest and started paying them off by targeting the smallest debt first. She started paying off her credit card debts, a $65 to Walmart was her smallest.
This strategy worked well initially as she was making progress on the smaller debts, one by one. This gave her a boost to work more and motivated her to keep making payments to the debts.
Step 5 – Initiated Biweekly payments
What she did is something we do not usually think of. She splits her payments into two each month. She divided her monthly bills in half and paid every other week. She also asked her lenders to consider any additional payment to reduce her balance, not to reduce her next bill. This way her loan balance went down to a decent level.
Step 6 – Start saving on little things
Big tasks are taken care of. Now all she was left with was doing small things that could help her out to save more. So, she started buying groceries and other daily household stuff online rather than going into storefronts. There’s a lot of stuff you can find cheaper online these days. You can even get good cashback if you can buy stuff in bulk. She also uses cash instead of credit cards for purchasing anything, as research says people spend 12%-18% less when they use cash instead of cards.
Step 7 – Started income at home
Sarah could have done anything to get out of debt problems once and for all. And, she chose the right way to increase her monthly income. She sold all unused things she had and earned good money. She sold her clothes, shoes, unused furniture, and her favorite old car to get some serious cash. She believed that by cutting her car loan in half, she could be one step closer to becoming debt-free. She sold her car and put that money towards debt payments.
Apart from that, she also started some side hustle to support her finances. As she is an accountant, she started giving tuitions to students on advanced accounting, economics, and statistics. This way she started earning extra and used that money to support her monthly budget, apart from making debt payments.
Step 8 – Engaged tax refund towards debts
She did something that is very uncommon. As soon as she got her tax refund, she used it to pay down the remaining debt.
You can find out various tips on “how to pay off debt fast” if you search this query on Google or any other search engine. Many websites and blogs may suggest multiple ways to pay off debt. But those multiple, generic suggestions are quite different from the advice given by an individual who faced such a real-time debt challenge. Here, Sarah also experienced the same situation and came out with flying colors.
So, if you think that you can’t get out of debt just because you have a low income, you’re probably thinking it right. However, if you believe that you are going to get out of the situation or become debt-free, and you’re initiating with a low income, you might have to work a little bit hard to find a way. As Colin Powell said – “There are no secrets to success. It is the result of preparation, hard work, and learning from failure.”