Paying off debt can be incredibly difficult, especially if you are still early in your career and haven’t yet reached a position at your work that pays really well.
Although it may seem incredibly difficult to get out of debt on a low income, it can be done with the right budgeting and consistent execution of the budget. However, it isn’t easy and takes proper planning and financial discipline.
For your benefit, here is a five step process developed to help you payoff your debt in a consistent manner, without sacrificing key parts of your life in an effort to do so.
Find Out How Much You Owe
First and foremost, you need to know exactly how much you owe before you begin to develop a budget to pay off the debt.
In order to determine how much you owe, be sure to check with all loan providers that you borrowed money from, including banks, student loan services and car dealerships. While discussing how much you owe with loan services, be sure to try and negotiate your loan payments to the most affordable monthly cost payment possible. In many cases, banks and other loan services are understanding and willing to work with you as long as you are honest and open about your ability to pay off the debt.
In the event student loans are the main reason for your debt – as is the case with many – then you can possibly cease payments until you are receiving a steady income and finished furthering your education.
By gaining a realistic understanding of exactly how much you owe, you should be able to reduce stress that can be brought on by not knowing, even if the amount is higher than originally expected.
Determine Your Total Income
After gaining an understanding of exactly how much you owe, it’s important to determine your overall income, which may also include the income of a spouse or a side income that you may have.
Establishing the exact amount of monthly income that you and your family are bringing in is crucial for formulating a budget that works well. Also, in the event your expenses and debt payments greatly outweigh your monthly income, then you are able to then seek other financial opportunities, such as getting a part time job or selling items that hold no sentimental value for you.
Also be sure to calculate the post tax income in order to receive the most accurate amount that you bring in. Otherwise, you risk over budgeting and not being able to cover your expenses as a result. In the end, determining your overall income – as well as any income of your immediate family members – helps put you on the fast track to budgeting debt payoff in a manner that actually works.
Conduct a Financial Analysis
Now that you have a detailed understanding of all of your debt costs and how much you and your family bring in each month, it’s time to conduct a financial analysis of all monthly financial aspects of your life.
This means that you need to calculate how much your expenses – not debt – are each month, which may include house payments, car payments, etc. Be sure to remember every cost, no matter how minute it seems – into the financial analysis. For example, include small payments such as snack machines at work and birthday presents.
The best way to conduct a financial analysis is to live in a normal manner for a month, recording all financial details along the way. Afterwards, it’s important to look at all expenses and payments throughout the month and eliminate all unnecessary expenses, leaving only the necessary costs.
By doing so, you should have a very good understanding of all aspects of your monthly finances, which in return allows you to determine a plan to pay off debt quickly and consistently.
Create a Realistic Debt Payoff Plan
After determining all aspects of your monthly finances – which include how much you bring in, how much debt you owe and your monthly expenses – it’s time to create a realistic budget that allows you to pay off debt.
Every individual is going to have a different budget, so there isn’t a set method to paying it off. However, it’s important to use all information gained through the financial analysis to formulate the budget. In essence, the goal is to have your monthly income cover your expenses, while also leaving you with enough money in order to payoff debt as well.
In the event the expenses outweigh the monthly income, consider applying for a higher level position or asking for a raise within your company, seeking other financial opportunities or selling your home for something more affordable.
It can also be helpful to save money while you payoff the debt if you have the means. The best way to do so is to create an automatic transfer with your bank, which takes a certain amount of each check and transfers it into your savings account instead of checking.
Stay The Course
Most importantly, it’s crucial to remain consistent and financially disciplined, while paying off the debt. It can be very easy to lose track of the progress, especially as the debt starts to reduce itself.
In the event the detailed budget that was crafted isn’t followed responsibly, it essentially means it all was useless. In other words, the execution is the most important part, and it takes consistency and dedication to pay off.
The best way to remain consistent and dedicated while paying off debt is to find motivation. A motivational reason can take various forms, but a few good examples may include the desire to gain financial freedom in order to take the long awaited vacation you’ve always wanted or save up for your child’s college fund.
Although paying off debt is difficult, especially on a low income, it is manageable with the right preparation and dedication in place. Remember, paying off debt takes time, and subsequently it takes patience and consistency.
If you have any experience paying off debt with a low income, leave a comment, and share your experience in the section below.
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