Debt is everyone’s nightmare, but it can be especially tough if you’re limited by low income. Between student loans, car payments, mortgages and now with Covid-19 reducing thousands of sources of income for families, having a debt feels so much more overwhelming. It can make your world tumble and increase your insecurities about the future.
But, what should we say to our debts and fears? No more! We have some helpful advice for your debt-free life.
Determine all your debts
Facing how much you owe can be quite scary, especially if you’ve been tempted to ignore the bills that keep coming in. However, if your goal is a debt-free life, you will need to set down and identify everything that you owe. From overdue credit card statements, student loans, taxes you owe, to loans from friends and family and any spousal and/or child support you owe.
This step is critical because it helps you identify the best course of action, especially if you want to liquidate your debt with low income. We recommend creating a list for each liability and classifying the following aspects of your debts: the total amount you owe, the minimum monthly payment and the interest rate. Once you identify all of your debts, working on a plan that suits your needs and helps you pay off all of your debts will be much easier.
Don’t accept more than you can afford
The next point should be self explanatory, but please do not borrow money from one source to pay another. It probably seems like a good plan at first, but you are creating a cycle of debt that only surrounds yourself. Unless you’re planning to open a new balance transfer credit card or consolidate your debt, and you’ve thought through the implications and created a strategic plan to pay off all of your debt. Opening a new credit card is not a solution.
Budgeting is the key to success
We understand that creating a realistic budget during Covid-19 seems like an impossible task. Nonetheless, budgeting is your best friend when you’re drowning in bills and money disappears from your hands. It will be a tool that will guide you to determine which expenses are essential, how much you can send to pay off your debts and what expenses are no longer worth covering. Budgets are not a way to confine or restrict, on the contrary, they free you from the fear of uncertainty.
Choose a time frame to reach your financial goals
We apply deadlines to create a sense of urgency and drive us to achieve our goals. Well, paying off your debts is your goal, you just need to determine your deadlines.
Choosing a time frame is not just for motivational purposes, but you will realize how much money you are losing because of interest alone. We advocate for realistic deadlines, not too short or you cannot keep up with your payments. But also, not for long or you may lose focus and remember that if interest rates rise, your monthly payments may increase.
Find ways to earn additional income
If you have difficulty paying your debt while living on a low income, look for creative ways to make more money. It might not seem suitable for everyone. But if you’ve got a couple of hours on your hands and your debt-free life is your top priority, we’ve got some ideas for you.
Get a part-time job: with a company, restaurant or even implementing your skills in a different area than your current job. Are you good with graphics? Apply for freelance or part-time graphic design positions.
Are you good with a particular language? Advertise yourself as a tutor. Your knowledge is your strongest value.
Sell some of your things: Think about all your assets and which ones are suitable to sell. Do you have a wardrobe full of clothes that you haven’t worn in a long time? With the rise of online shopping and thrifting, selling your old but barely worn clothes could be a good source of additional income. Have you picked knitting as a hobby? Etsy and your local market are looking for your designs!
Rent out part of your house: Do you own a house? Or even an apartment? Split up the bills and if you’re lucky, make new friends while you earn an extra couple of bucks.
It’s all about being creative and never underestimating our skills, hobbies, or abilities. However, always keep in mind that your additional income is to pay off your debts, not for additional expenses.
Explore your options
You’ve set a budget, cut your expenses, choose a deadline, and you are halfway to finding an additional source of income. Then, why am I struggling with my payments and interests? Are there other options for low-income people? An essential part of the credit card business is high interest rates, that can be higher over time or when you missed a payment. You should always talk to your creditors first and negotiate a lower interest rate.
Nonetheless, if they reject your petition, you can consider a balance transfer credit card, and as last resort take a debt consolidation loan. The first option is to move all your debts into your balance transfer credit card; allowing you to keep track of all your debts in one place (which is extremely convenient if you tend to be forgetful or are dealing with too many payments) and they usually come with the lowest interest rates during a certain period of time. But, beware for the time frame! After that time frame, the interest rate rises and you will face the same problem as before your transfer.
Your second option would be a debt consolidation loan, which is ideal for smaller or moderate amounts of debt. If you have a good or high credit score, you can get attractive rates. However, if that’s not your case, and your credit score is lower or affected by previous debts, you will need to check and compare your interest rates.
It doesn’t matter if you choose one path or another, you must religiously pay every month and stay 100% committed to your budget if you want to achieve a debt-free life.