Getting out of debt may seem daunting or even impossible when you struggle to make ends meet each month. How can you pay off what you owe when there’s barely enough income to cover necessities? With strategic planning, discipline, and commitment to changing your money habits long-term, you can become debt-free, even on a low income.
In this comprehensive guide, I’ll walk you through the step-by-step process I used to pay off $15,000 in credit card debt in under two years despite earning less than $30,000 annually. With focus and persistence, you can do it, too.
Track Your Spending
The first critical step is tracking every dollar you spend for 1-2 months. This clarifies precisely where your money is going so you can make intentional cuts.
I recommend using a budgeting app like Mint or creating a simple spreadsheet. Log every expense, no matter how small. This includes groceries, gas, dining out, entertainment, clothes, subscriptions, and anything else you purchase. Don’t forget automatic expenses, like utilities, car insurance, student loans, etc. The goal is to account for every cent coming in and going out.
For example, I discovered I spent $400 monthly on convenience store coffee and lunches. That was shocking, but I didn’t even realize it without tracking.
Once you have visibility into your spending habits, it’s time to cut any expenses that aren’t necessary, which is often more than you think. Be ruthless here; the more you can reduce spending, the more you can put toward debt each month.
I eliminated dining out, canceled unused subscriptions and gym memberships, and reduced grocery and entertainment costs. For recurring bills, I called companies to ask for better rates. In total, I cut around $600 per month in discretionary spending.
Even small changes add up. Pack your lunch instead of eating out. Brew coffee at home. Have game nights instead of going to the movies. Every dollar you bank is one step closer to debt freedom.
Increase Your Income
In addition to cutting expenses, find ways to earn extra income that you can use solely for debt payment. Take a side gig like rideshare driving, tutoring, or freelance work. Sell unused items around your home. Ask for a raise or find a higher-paying job.
I joined Rover as a dog walker, which added $300 per month, which all went straight to my highest-interest credit card. I also decluttered my closet and made over $400, selling old clothes and electronics I no longer needed.
List Your Debts from Smallest to Largest
This is a critical step in implementing the debt snowball payoff method. Make a list of all your debts from smallest balance to most significant. Do not sort by interest rate.
The logic is that you’ll build momentum by getting those small, quick wins. Psychologically, this motivation helps you stick with paying off debt month after month.
My debts ranged from $500 on a retail store card to $7,800 on a maxed-out Chase Visa. I listed them all out, starting with the smallest.
Pay Minimums On All Debts Except the Smallest
Now, it’s time for the debt snowball effect. Every month, you’ll pay the minimum payment on all your debts except the smallest one. You make as much payment as possible on that smallest debt using your budgeted amount plus any extra income.
I paid about $25 monthly on all my debts besides the $500 retail card I paid $800 towards. Once that was paid off, I rolled that $800/month to the next smallest debt.
As debts are paid off, the payment snowball grows. You maintain focus and persistence until everything is paid.
Make Lump Sum Payments When Possible
Any unexpected income, like tax refunds or bonuses, should go directly toward your debts. Look for opportunities to make extra lump sum payments above your monthly amount, which helps pay things off faster.
I used my annual $1200 tax refund to make a large payment on my 5th most considerable debt, which wiped most of the balance out. Windfalls like this accelerate progress.
Joan Pays Off $18K in Debt in 18 Months
Joan struggled with $18,000 in credit card debt between 4 cards and felt she would never pay it off on her $40,000 salary. Using the strategies in this guide, she committed to tackling her debt head-on.
She started by tracking expenses and found that $400/month she could cut out from impulse shopping and meals. Joan also started driving for Uber on weekends for an extra $250/month.
Listing her debts from smallest to largest, she paid minimums on all except the $900 card. She put an aggressive $700/month towards that first card from her budgeted amount and side gig income.
Within seven months, Joan paid off that first card. She rolled that $700 to the next card, a $1,500 Best Buy store card. After another five months, she paid that off, too.
This snowball effect continued with her building momentum and determination. When Joan received a $ 1,000 tax refund, she made a massive dent in her fourth-largest debt.
In just 18 months, Joan paid off the entire $18,000 in debt and became completely credit card debt-free! She said the key was sticking to her debt payoff plan no matter what.
As Joan’s story shows, you can get out of debt with focus and discipline even while on a limited income. It takes strategy, planning, and committed action over time. But imagine how amazing you will feel to have that burden lifted!
The key is changing money habits for good. Determine where every dollar goes and intentionally align spending with your goals. With each debt you knock out, you’ll gain momentum and prove that you can do this.
It won’t be easy or happen overnight. But with a solid plan and persistence, you can pay off debt once and for all. You’ll gain freedom, and peace of mind are worth the temporary sacrifices.