So, you are deep in debt and feel like there is absolutely no hope. You just need to know how to get out of debt when you are broke, on a low income, living paycheck to paycheck. Unfortunately, there is no magic pill or fairy dust. It takes hard work and determination. It did not take a day to get you so deep in debt and it is going to take you more than a day to get out of debt. We need to come up with creative ways to pay off your debt. You need to not only cut expenses, but to create more income as well.
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How many times have you heard this:
“We paid off $60k in debt in 18 months.”
“We paid off our $258,000 mortgage in 2.5 years”
Some of us don’t even make $60k in a year.
According to CNBC, the average American worker makes:
- 20 to 24 years: $525 weekly/$27,300 annually
- 25 to 34 years: $776 weekly/$40,352 annually
- 35 to 44 years: $976 weekly/$50,752 annually
- 45 to 54 years: $975 weekly/$50,700 annually
- 55 to 64 years: $966 weekly/$50,232 annually
- 65 years and older: $904 weekly/$47,008 annually
So those people paying off $60k in 18 months, they are not normal, they are not average and that is okay. Paid off that huge mortgage? They probably sold their house and downsized. Do not compare yourself to them. That is what puts the PERSON in PERSONal Finance. Everyone is different. Everyone has a different starting point and a different ending point. This was the hardest concept for me to master. I was always comparing my story to “theirs”. I finally realized, my story is MY STORY.
So you are thinking, “I am in debt up to my ears, or knees, and I am already living paycheck to paycheck. How will I ever get this debt paid off with a low income?” Will I ever get out of this hole that I am in? Yes, you will.
You need to have a Plan and Stick to it
If you do not have a budgeting plan or system in place yet, that really is the first thing that you have to do. You need to know where your money is already going in order to change things around or make a better plan. You need to really take a deep look at all of your expenses. You need to be 100% committed to the plan for the duration of getting out of debt. No cheating one month, saying you will make it up next month. I am here to tell you, it won’t happen.
How to Create a Budget – Step One
Not everyone in debt has a huge shovel. You have to work with what you have so you better start planning every penny, every dollar of your spending. Be intentional with your money.
So first, let’s take a look at debt. List all of your debts from smallest to largest. That is how we are going to tackle this. You are going to create a debt snowball. Little wins first, then big wins.
Take your list of bills and list them smallest to largest. Is there anything that you can completely cut out? Can you renegotiate your cell phone bill or internet or even your car insurance? Can you go with out cable for a few months or years so you can throw more money at debt?
Remember, a little pain now will turn into big gains later.
The food budget is usually the easiest line item in a budget to cut. You can use coupons, money saving apps, and meal planning as well as other inventive ideas to cut your food budget.
Can you maybe sell a car that you are still paying on and take the proceeds to pay cash for a car and drive that beater for a year or two? This is not feasible for everyone and it was not for us. When we first started digging out of debt, we sold our camper that we just did not use enough and eliminated that payment.
Ride your bike to work or use public transportation (some companies even subsidize public transportation costs). Again, I know this is not feasible for everyone. We live out in the country and it’s 8 miles to the local village and stores and at least 4 miles to the nearest gas station. Heck, we have three cars and we are just an average family. One vehicle is for two of our kids who drive, my husband has his Jeep that he drives back and forth to work and I drive the family van, which I regret buying, but that is another story for another time.
Little habits: packing your lunch, making your coffee at home instead of stopping every single day. Say you spend $3 per day, 5 days per week. $15 per week for 50 weeks (most people take at least 2 weeks vacation per year). That is $750 spent on take out coffee per year. That could do some serious damage to your debt I bet. $3750 over five years. That is a good chunk of change!
Do you want to be gazelle intense in paying off your debt or take a few more years and not go too crazy? It is up to you. You are in control of your debt payoff plan and you can always ramp up the intensity as you go. Believe me, once that snowball gets rolling, it can be contagious.
Small wins matter. $5 extra to your credit card bill this month counts. Like I said before, not everyone can scrape up an extra $1k every month to throw at their debt.
I am right here with you. I have debt and use undebt.it to keep track of my debt and payments and the extra that I can pay every month. Sometimes we just make our payments and sometimes we can double some payments. We have irregular income and it is sometimes hard to plan. We cash flow a lot of expenses during the year so we do not always have a lot for that snowball.
Many things can come up every month. It is very important that you establish a small emergency fund before starting your debt snowball. You really have to decide what is a true emergency and what is not, so you do not use that emergency fund for when your friends come into town unexpectedly and you want to go out to dinner. Not a true emergency! Water pipe breaking – true emergency.
Why You NEED an Emergency Fund
Ask for an interest rate reduction. Refinance your mortgage. Transfer credit card balances to a zero rate for 6 months. Get creative. Play around with your amounts and see what can work for you.
Give up these 7 Things to Get Out of Debt Faster
Work overtime, sign up for as many overtime shifts that you can. Pick up a side job, part time job? It does not have to be forever and it does not have to be year-round. My husband has a part time job in the fall only, for about 12 weeks. Last year it enabled us to put new tires on 2 vehicles and cash flow Christmas. And you know what, my husband already works close to 60 hours a week. If he can do it, anyone can do it.
Side hustle online – My online side hustle is this blog. It makes me a little extra money right now, but I am hoping that someday it will fully replace the income from my job.
Ask for a raise at work
Look for a higher paying job
Move in with a roommate/parents/family
You have to remember, these sacrifices are not going to be forever. Remember why you are doing this. Why do you want to become debt free? Do you want to save for a house? Plan for a family? Retire early? Or just enjoy a debt free lifestyle?
Once you free up more money, you can spend money on the things that you want instead of the things that you have to.
Imagine what your retirement accounts could look like if you did not have car payments or credit card payments or student loan payments?
I cannot stress enough the importance of having a plan. Have a plan while you are in debt and especially have a plan when you are out of debt. That money that is freed up is not just “free” money to do whatever you want. I mean, you can do whatever you want, it is your money. But remember the why – why do you want to get out of debt? You still need to plan your expenses and savings, even when you are debt free.
There is no rule that states we have to stay in debt all of our lives. Debt creates so much stress. Oftentimes we cannot enjoy the simple pleasures in life because we are worried about how we are going to pay that next electric bill or how we are going to pay for Christmas gifts this year. I use sinking funds to save up for all our known “big” goals for the year, such as Christmas, birthdays, car repairs, house repairs, sports fees, etc. I personally keep all of that money in a separate savings account and keep a sinking funds spreadsheet, download yours for free.
If you read a lot of the personal finance blogs, it can be a little intimidating. It seems like everyone has it all together and they are all debt free, living the easy life. I get intimidated because I still have consumer debt. But you know what, they are just like us, they still put their pants on one leg at a time, just like us. Most of them started off their adult life in debt. We all have to start somewhere.
My goal for 2018: Pay off 50% of our consumer debt. We have some big items we need to cash flow this year, we have a son graduating from high school and then going into the Marines, so we will be traveling to his bootcamp graduation, so I am not sure if we will get to 50%, but I wanted to make that goal big.
If you would like to keep up to date on my debt journey, please join the My Journey Along the Way Facebook group at: My Journey Along the Way FB Group
Join to share your goals and for the encouragement that we all have to start someplace and let’s start together.
Let’s get that debt paid off!