5 Ways to Pay Off Debt on a Low Income

When it comes to money, one of my battle cries is, “Personal finance is personal.” This is especially true when I’m educating low- and lower-middle-income people about paying off debt.

Lower income earners have a different experience with becoming financially stable than higher income earners because of math and economic circumstances, not because of moral failings or poor decision making. When you have less money to allocate to debt, or you’re focused solely on surviving until your next paycheck, your debt repayment timeline and strategy will take a different shape than someone making over $100,000 a year. Personal finance is personal, which means the debt repayment strategy that works best for you will also be personal.

The average income in the US was $56,368 in 2022, while the average debt load is more than $100,000, according to the Census. Our collective credit card balance has increased dramatically in recent years, and the number of defaults is now also increasing.

Transport: Join Costco or Sam’s Club for discounted gas prices and combine all your grocery shopping and out-of-home trips to use less gas all month. Shop around for a better value auto insurance plan — I use Gabi to compare prices. Also use public transport if it is available to you.

Utilities: Call service providers to make sure you’re getting the most affordable rates. Ask for discounts based on your identity or career — there are sometimes discounts for active military, veterans, first responders, teachers, seniors, and AARP members, to name a few. Also, use a low-cost cell phone provider — I use Mint Mobile.

Food: When eating out, avoid alcoholic beverages, which are often heavily discounted, and try happy hours at local restaurants and bars. Skip DoorDash and UberEats, or pick up your own food if you order takeout to save money. Make a meal plan and stick to it, shop at discount grocery stores, and use their takeout services if they have them to reduce impulse buys. Also consider making a meatless meal at home once a week.

Entertainment: Opt for matinee movies, free local events, and/or Groupon discounts. End unused subscriptions and split the cost of streaming services with loved ones. Take advantage of your local libraries and museums that offer free memberships — they often have free events and speakers.

Finally, I recommend GoodRx for all your prescriptions, which can give consumers up to 80% off medicines.

Automate your money

Many companies, including student loan providers, will give you a discount if you set up automatic payments. By setting up automatic payments, you don’t waste time talking to machines. You don’t have to drive anywhere to pay your bills on time, and you don’t accidentally miss a payment.

I recommend automating everything you can for bills, savings, and investing. When life gets busy, you don’t have to worry about whether your personal finances have taken a back seat.

Try a part-time job

Depending on your specific situation, asking for a raise at your 9-to-5 job may not be an option. If earning more in your current career or job isn’t possible, you’ll need to come up with alternatives.

My best tip for side hustles is to make sure it’s something you enjoy or are already good at. I’ve done odd jobs and ended up burning out because I stopped enjoying what I was doing. If you’re going to work extra, you might as well do it at a job you enjoy.

Thanks to the gig economy, there is every kind of side hustle you can think of. My favorite is dog sitting. Rover is an online dog care service that matches pet parents with sitters, walkers, and boarders. I’ve been able to make thousands of dollars a year doing this, which I’ve used to pay off debt, save, invest, travel, give Christmas gifts, and more. Other gig economy platforms include Care.com for nannies, DoorDash for delivery people, and Fiverr for artists and service-oriented professionals.

Take stock of your resume and evaluate your transferable skills. You may be surprised at how much extra money you can make.

Choose a sustainable method to pay off debt

There are several ways to pay off debt. My favorite method for low income earners is the snowball method.

Simply put, the snowball method prioritizes paying off the debt with the lowest total amount owed by paying the minimum on every other debt you have and allocating your remaining funds to the smallest balance. Once the debt with the lowest total amount owed is paid off, you apply the amount you paid on that debt to the next lowest debt on your list.

Here’s a hypothetical example where someone has two debts: a credit card debt and a car loan.

In the snowball method, this person would use all of their excess income to pay off the credit card debt first, while continuing to pay the minimum amount on the car loan each month. Once the credit card is paid off in full, this person would reallocate their extra debt payments to the car loan.

The snowball method creates momentum on your journey to debt-free living, something low-income earners need to keep moving forward.

Remember: Paying off debt is a marathon, not a sprint

It’s easy to get discouraged when you see someone pay off $120,000 of debt in one year. Their story is not your story. Their debt-free journey is not your debt-free journey, and their situation is not your situation, so their timeline will not be your timeline. If you’re on a low income, it’s going to take longer to save and pay off debt… and that’s okay.

This is not a sprint to see who can work the hardest, cut the hardest, or sacrifice the most to get out of debt as quickly as possible. Stay on your own path and focus on what you are doing. The important thing is that you are following a sustainable plan and making progress while living a healthy life.