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.
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.
2. Focus on One Debt at a Time
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.
- Avalanche: Pay off the loan with the highest interest rate first, then work your way down to the debt with the lowest rate. This will allow you to minimize how much money you spend on interest.
- Snowball: Pay off the smallest loan first, then work your way to the largest — seeing each small debt paid off could give you the motivation you need to tackle larger ones in the future and minimize the number of bills you have to pay each month.
3. Determine Your Biggest Expenses and Save Where You Can
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.
- Buy food in bulk and make delicious homecooked meals rather than eat out
- Choose a day every week to walk, bike, or carpool to work with friends
- Opt for an online streaming service rather than cable or satellite TV
- Explore your local thrift shop rather than shopping at a mall or retail outlet
4. Consider Finding an Additional Income Source
Do you know someone in desperate need of a babysitter? Are you from a city where ridesharing apps are 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.
- Work a part-time job or ask to work overtime
- Sell handmade goods online or to friends and family
- Take online surveys
- Rent out part of your home
5. Ditch the Credit Cards
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 phone-based payments, 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.
6. Keep in Touch With Creditors
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.
Ways to Manage Your Debt on a Budget
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.