If you’ve just graduated from college or started your first job, you’ve likely found yourself in some type of debt. From student loans to rent and car payments, it may be difficult to manage your monthly bills — especially if you’re on a tight budget.
Getting out of debt is entirely doable, even when you’re working with a low income. We’ve put together six tips to help you create a debt management plan and learn the best ways to take control of your financial life. You CAN do this! Let’s show you how.
1. Make a Spending Plan Using Zero-Sum Budgeting
Creating a budget can be incredibly satisfying, but if you can’t seem to stick to it, zero-sum budgeting could be what you need to regain your financial footing.
The goal behind zero-sum budgeting is to end every month with an account balance of zero. While this might seem counterintuitive, you’ll really be putting each cent toward paying bills, savings, and investments to help you get out of debt quickly.
Build up a month’s worth of expenses in savings, which is your spending limit for the first month’s budget. Budget every dollar on paper — prioritizing your bills and savings account — until you’ve spent the savings. Since you’ll be living off last month’s income, you’ll start saving entire future paychecks for later use.
It’s easy to take a chunk out of your debt when you’re focused on paying off one debt at a time. While you’ll still need to make minimum payments on every bill, you can focus on paying more than the minimum on one debt until it’s completely paid off, then do the same until you pay off each one.
So, which balance should you pay off first? Most people choose to tackle their debts through either the avalanche method or snowball method.
After you have a good understanding of your budget and how much you need to spend every month, it’s time to look at your expenses and trim the extras.
There are plenty of unique ways to save money each month that can be both easy and fun, such as the following:
Do you know someone in desperate need of a babysitter? Are you from a city where ridesharing is a major form of transportation? Do you love to spend your weekends making crafts or perfecting recipes? Turn your everyday opportunities into some extra income while you pay off your debts.
If you’re serious about getting out of debt on a low income, it might be time to cut up your credit cards and make the switch to cash. It’s easy to forget how much you’re paying when you can’t see the money in front of you.
With the rise of digital shopping, it’s gotten easier than ever to overspend. Stick to the money in your wallet and use your zero-sum budgeting skills to decide how much cash to take with you when you’re out and about. Debit cards are a cash alternative, and when you use PSECU’s debit card, you earn rewards! You can earn $0.10 cash rewards on eligible purchases of $10 or over with a PSECU checking account and one or more qualifying monthly direct deposit(s) totaling at least $500. You can earn $0.05 cash rewards on eligible purchases of $10 or over for accounts with a PSECU checking account. Certain restrictions may apply. See the Visa® Debit Card Rewards Program Terms and Conditions for full details.
Lenders are people just like you who understand what it’s like to pay off debt. If you’re having trouble paying your monthly bill, give them a call to ask what debt management services they have available.
Talk to your creditors as soon as you begin to struggle, rather than waiting for them to contact you because you haven’t paid your bill. They may understand your situation and could even have the ability to reduce your payments temporarily while you work through a tough financial situation, like a medical emergency or job loss.
From working odd jobs to stopping by the ATM before going to the grocery store, there are plenty of ways to save while on a low income.
Are you working toward conquering your debt? Check out our blog and our WalletWorks page to learn more tips and tricks on debt management in every stage of life. These resources are free to members and non-members. Not a member? Join today and get in on all our money-saving perks like free checking, debit card rewards, and more!