Debt on a Low Income

05-05-2015 | Ramona |

Paying off debt is one of the biggest concerns of the ‘modern‘ people and debt on a low income is, unfortunately, something many face today.

Debt payment in itself is difficult, taking time and sacrifice, when your income is also low, the entire battle seems lost.

Just like many before me (and after), I was in debt.

And it wasn’t pretty.

One year after signing a very expensive car loan (which I could afford with my salary), the radio station I was working at closed down, leaving us all jobless.

There were no other similar jobs, I had to pay company taxes (I had a small ‘ltd‘ for my web design business) and a HUGE car loan.

How do I put it nicely? I was screwed.

My side-hustle turned into a full time career/business and, with the unconditional support from my amazing family, I was able to make it.

My debt story sits in the past, but the ‘teachings‘ will live with me for the rest of my life.

So, let’s get back to our main story: how can we pay off debt on a low income?

Have a plan

In my case the plan was to ‘survive‘ financially for the remaining 3 years, since I had fixed monthly payments and paying off in advance would have cost me more (some fees for early payment, which I wasn’t willing to pay anyway).

OK, let’s be honest, I had no money to pay off my debt at first, so there was absolutely no chance for me to ‘worry‘ about paying it off in advance.

If you are not like me and have various credit cards, student loans, mortgage etc., you’ll need to take a moment and list your debts, the monthly payments, interest rates and so on.

This would allow you to know exactly which loan ‘costs‘ you the most, which is easier to pay off etc., depending on the debt payment strategy you’ll choose.

Be willing to accept support

Whether it’s money someone dear is willing to give you (even for a while), a bowl of soup or a second-hand TV to replace the broken one in your home, don’t act too proud.

My family paid ALL my expenses (except for my company taxes, the car related expenses and phone bill), put a roof above my head and fed me those few months when I was barely making it.

Of course, as soon as my business started bringing me more income, I was able to pay my own bills and even bring money at home for our groceries, various home improvement projects etc.

Still, when I needed it the most, those first 3-4 months when I was barely making it to keep ‘afloat’, their support meant a lot to me.

So, if there’s anyone willing to lend you a hand, don’t say no.

Downsize everything

Of course, when you are living on a low income, there aren’t many luxuries in your life.

Even so, it’s worth taking a second look. Even few bucks here and there can make a difference when it comes to paying off debt on a low income.

Back in the day, I kept my spending to a bare minimum, which allowed me to throw almost all my income to paying off my debt. Sure, when I started making more money, there was enough to indulge in a new camera, a trip to NYC etc.

Do NOT miss any payments

Missing payments means paying some hefty fees, which will knock you down, when it comes to your debt payments.

You’ll probably have to make the minimum payments on some of your debts, while trying to speed up payments on a specific one, but do not miss any payments, as much as possible.

You are already on a low income, barely making it, so any new fees you need to pay can be disastrous.

And again .. a personal anecdote:

Few months before ending my ‘contract‘ and becoming debt free, I started getting more relaxed with my payments.

I was actually making a good living and decided to ‘invest‘ in something more pleasant, thinking that the bank won’t take my car, when it’s almost paid off and so many people in my country can’t make payments.

Well, guess what, the bank had nothing against taking my car, 5 monthly payments before we’d end it all.

I was lucky to actually get them to re-open the contract (someone was very fast there with cancelling our agreement) and had to pay a hefty fee. Let’s say it cost me one of those monthly payments just to get back on track.

The good thing was that the unexpected fee was already something I could easily handle (my web design business was thriving, so it was just annoying, not a catastrophe), and yet I could have done something better with the money and not lose it like this.

So, DO NOT MISS PAYMENTS as much as possible. Avoid any fees you can by trying to make all the needed payments.

Try to earn more money

When you have a low income and debt there’s really not too much you can do to get afloat.

You are accepting help, you are not spending recklessly, you are abiding by your master-plan, not missing any payments and trying to minimize any new fees or interest rates, but there’s a big limit to what you can achieve and that’s because of your small income.

In my case, getting my small web design business up and running saved me.

It was my chance to earn better than ever before (even if the first few months were grueling). Income has skyrocketed compared to any of my previous wages and this allowed me to pay off my debt and have a lot of fun besides this.

We’ll try to list as many side-hustle ideas here for your inspiration and also provide few eye-opening freelancing success stories, that I hope will give you the courage to try out something new.

In many cases this can just be a bit of a side income, that would allow for faster debt payment. In few cases it might turn into a new ‘life‘ for you, a new business that will help you achieve all your dreams.

Be consistent in your efforts

I’ve always compared personal finance to losing weight. Whether it’s paying off debt, saving money or trying to get healthier it’s all about a LIFESTYLE you need to choose from now on.

When you are trying to improve your financial situation, you need to take a good look at where you’re at and get ready for the marathon.

No plan, no matter how well thought, will work for your situation, if you are not willing to go the distance.

Paying off debt on a low income means not only having to make some HUGE adjustments, it also means being very consistent and never looking back.

Do you have a successful story? Are you currently paying off your debt? Care to share your experiences with us?

If you like what you are reading, please share. Thank you :)

Recent Comments

  • The Roamer

    May 11, 2015 at 3:15 am

    Good advice specially about not missing a payment. Its crazy to think that with only 5 payments left they reposesed the car.

    Its true too that its easier if you just commit to making it a lifestyle change.

    • Dojo

      May 12, 2015 at 11:42 am

      Yes, I was THIS stupid to think that the bank won’t reposes my car. Back then there were literally tens of thousands of cars in their parking lots (from people who missed more payments than me) and stupid me thought they had no intention of getting yet one more car they won’t be able to sell (the economy tanked few years ago and it’s still not doing well as we speak).

      Still, they cancelled our agreement and were ready to lift the car, when I was lucky enough to get them to re-open and I had to pay their hefty fees. The biggest issue was that I was traveling back then, so dealing with my Romanian bank from the US was really interesting to say the least.

      Lesson learned though … never skip payments 😀

  • Joanna

    August 30, 2015 at 9:54 pm

    Happy to see things worked out for you. Clearly not a great place to be, just for missing few payments.

    • Ramona

      August 31, 2015 at 9:26 am

      Absolutely. I was shocked to see that me being ‘relaxed’ almost cost me the car, all the payments made and probably some more money, if the bank couldn’t sell the car and recover their money entirely. When in debt, ALWAYS make your payments on time.

  • jANE

    September 7, 2015 at 5:33 am

    It’s difficult enough being in debt on a normal income, I can’t even imagine what debt on a low income must be like.
    All I can say is, apart from agreeing with everything you just said, being in debt opened my eyes. I prefer saving money at my own pace, rather than get in trouble with the bank.

    • Ramona

      September 7, 2015 at 12:32 pm

      Debt is OK sometimes, since there are things we cannot pay out of the pocket (or have to wait too much time). But it’s still something to never take lightly and it does have its downfalls, that’s for sure. Being on a low income and in debt is very difficult.

  • naturallyjmharris

    September 13, 2015 at 12:14 am

    We were living on one income while I was in school and still managed to pay off debt. We cut our spending out completely- no shopping, no restaurants, no takeout. I said no to a school trip. We cancelled our netflix and ate beans and rice more than once. It was rough, but it allowed us to throw a little money at our lowest debt first and have the relief of eliminating a couple medical bills. Eventually, our income grew, but our habits from our tightest months served us well as we paid off the rest of our debt.

    • Ramona

      September 13, 2015 at 1:39 pm

      Inspiring story. There are many people who were completely changed by their debt payment journey and it’s OK. We do need to be more responsible with our money and this clearly teaches us a great lesson.

  • Jasmine2015

    October 1, 2015 at 3:54 pm

    Being able to pay back what you owe is a bug deal to me. This person, or company, trusts that I will pay back their money so that is what I should be doing. I have never heard of fees for paying in advance. It’s one thing to add fees for being late, but paying early? I guess companies do this because paying early would mean they can’t make as much money on the interest they are putting on your loan.

    • Ramona

      October 1, 2015 at 8:28 pm

      Yeah, it does happen with some loans in Romania. You are given x sum to give back and, if you pay earlier, you’ll pay what they call early fees (probably you’re messing with their never ending commissions :D)

  • John Dough

    October 14, 2015 at 9:48 am

    Most people I know, who are in debt, are also on a low income.

    Unfortunately, this is one big money paradox: people who have money are able to buy stuff paying cash, or in any case, debt for them is not a problem. But “poor” people can’t afford to buy stuff without getting loans, so there you have it: debt on a low income.

    • jb

      October 8, 2016 at 4:38 pm

      That’s why it’s important to look for a strategy to get out of debt, and then make sure you have some savings so you can pay in cash what you usually pay with credit.

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