Getting out of debt when you barely have money to manage your daily needs is certainly a challenge. While you are trying to get through the day with as little spending as possible, you can’t afford to avoid your debt. Ignoring debt will result in dire action form your creditor. Your car, house and other property can be confiscated and sold off, if you’ve listed it as collateral.
So, how do you start paying off your debt when you have a low income? It all depends on how much debt you have.
Create a Budget
Any time, any situation, a budget is a must. It is the best way to get your limited income in order. An important part of the budget is tracking your expenses. You need to understand your spending habits, so that you can cut on expenses which are unnecessary. You will want to cut down on your food take-aways and outing expenses. You can track expenses either through pen and paper, or you can install an app on your phone which will help you out.
In addition, you record your income not only from your salary, but shares, property, etc.
By creating a budget, you map out your monthly spending. The aim is to free up more money which you can use for debt.
Deal with the Credit Cards
Believe it or not, credit cards are creating more debt than helping you out. You are spending money you don’t have and paying it back with interest. So your debt is actually increasing as long as you use a credit card. The best option would be to use credit cards sparingly and start paying in cash wherever possible; especially, in the grocery store.
If you decide to keep the credit cards, don’t have too many. In fact, limit yourself to no more than two and use them only when necessary.
Pay it on Time
Even though you have low income, you pay the debt on time. Don’t wait to become a defaulter on a creditor’s list. When you create a budget, always ensure that you set money aside from your income to pay the debts. Paying it on time, further, boosts your credit score which is advantageous.
Negotiate Better Interest Rates
One of the best ways to reduce the debt amount is to negotiate better interest rates. Low interest rates result in you paying less. Getting the creditor to lower the interest rates can be tough, however it can be done. Having a good credit score is one way to convince them that they should lower it. A good credit score (at least above 600) shows that you are financially responsible.
You could also explain your situation and how right now, you aren’t earning enough income to sustain those interest rates. Bring documents revealing your income and the other debts you are in to put your point across strongly.
It’s not easy paying off debt with a limited income, but with careful budgeting and negotiating with your creditors, it can be done. If the debt is high where you cannot afford paying the minimum payments, then talk to a debt consultant for professional help.