10 Tips For Managing Debt While Living On A Low Income:
Living on a low income is not an easy thing to do. Even if you don’t earn a lot, you still have to pay rent, food, and other bills. With these 10 tips you will find it easier to manage debt while living on a low income and stay financially fit over the long term.
If you are having a difficult time and are overwhelmed by debt, it might be time to talk to an experienced financial advisor or debt counselor. With the right help at the right time, you can quickly regain momentum. So don’t procrastinate if you suspect that you might need help.
1) Get Out of Credit Card Debt
The first step is to look at your income and expenditures, then figure out how much you can afford to spend each month. It’s also possible to make a lump sum payment toward your debt. Before interest charges start making smaller debts more expensive, be sure to prioritize paying off debts that are under $1,000 in order to avoid paying high interest rates on a more expensive debt.
After clearing up all of your smaller debts, it’s time to tackle one of your credit cards. Whether you make it your focus to pay down a single card or make an entire plan for your payments on all your credit cards, make sure it’s clear which one is your top priority.
Ensure you set aside enough money every month to avoid accumulating even more credit card debt. Keep in mind, if you’re late on payments or miss them entirely, the card companies may impose fees on you. This would be a great setback to say the least. To help prevent further credit card debt, make sure to avoid paying for anything with a credit card whenever possible.
Instead, try setting up an automatic savings account, transferring money into it every month until you’ve paid off what you owe on your credit cards. When those balances are clear, stop using credit for three months and pay for everything with cash.
Once you’re ready to start using credit again, only do so for emergencies. Use just one card and, preferably, select one with a low credit limit and an excellent rewards program. Secondly, if you’re unable to meet your monthly credit obligations or fear you may fail to make a credit card payment, get in touch with your creditors straightaway and ask them if they can do anything for you.
There are financial support programs in place for those who are struggling. You do not need to continue suffering. Help is available!
2) Start an Emergency Fund
One of the worst things that can happen to a person on a low income is when an expense crops up that was not anticipated. It might be car trouble, illness, or the loss of a job – it is not easy to maintain financial stability without adequate savings.
A good way to avoid any emergencies is to save, which will be more helpful than putting off savings. A safety net that holds a small amount of cash ($500) with at least three months of your expenses is crucial to any emergency.
That way, when something goes wrong, you won’t have to go into credit card debt or take out a loan—and you’ll avoid the expensive consequences. If putting in some hard work every payday seems like too much, slowly contribute to an emergency fund by paying in some money every now and then.
This will help keep your debt in check and provide you with some relief. Furthermore, let it be known that the amount of money you make isn’t indicative of your intelligence or competence. Everyone should take measures to prevent a disaster from ruining their finances.
3) Prioritize Saving
The emphasis on savings can never be enough. It should be one of your top priorities when you’re in debt to save for an emergency fund. Make automatic transfers from your checking account to a savings account with no penalties.
Give yourself an allowance of 10% of your monthly income for savings if you can afford it, and 1-2% if you can’t. Even saving $50 per month can help alleviate problems with a tight budget, in case of emergencies or unexpected expenses.
Plus, you can save even more and make extra payments if you want to. Try to put away a little more, as soon as you can.
You’ll pay less interest in the long run. And as an alternative, it may be wise to use your newfound resources to pay off your higher-interest credit cards first.
It’s vital to start working on your dream now and you don’t need much money; in some cases, getting started is better than not starting at all.
4) Avoid Overdraft Fees
Living from paycheck to paycheck can put you at risk for running a balance at the bank and ending up with fees in the form of overdraft fees that can pile up if an expense happens that you aren’t expecting and your account doesn’t have enough money.
If this does happen, these fees can be more expensive than you think at up to $35. Don’t have overdraft protection set up – it only creates additional costs. Rather, link your checking account to a savings or money market account so that you’ll automatically cover any negative balances.
There are several options available to make sure you’re able to keep tabs on your account, including online banking alerts, or simply switching banks. Find a bank that offers free checking accounts and no monthly maintenance fee.
5) Cancel Unused Subscriptions
This will not only reduce monthly costs but gives you peace of mind that you aren’t throwing money away. If you ever want to go back to the stove, it will be they’re waiting for you. You’ll save a lot of time if you can get rid of something right away when you no longer need it instead of holding onto it in case you may find some other use for it later.
No one’s wasting time managing an unused subscription service; no one needs to waste time with an old cable box from 1997 before they can replace it.
Here’s an obvious point, but one big way people go into debt is by only making the minimum payments on their credit cards.
One very important lesson to take away from this article is that unsecured debt will obliterate your finances if you don’t do anything about it—and that’s only amplified when interest charges accumulate.
There’s no better time than now to put those credit cards, student loans, and other high-interest debt payments first.
Make paying off debts that are not loans your first priority (unless you have to in order to keep a mortgage). But once you’re finished, make your savings your next task and set your long-term goals after that. Don’t get sidetracked. be cognizant of what is of the most importance, first and foremost.
6) Switch to a Cheaper Cell Phone Plan
Approximately 7 in 10 Americans have smartphones, which means that cellphones have become an essential part of modern life. Although they cost more than old-fashioned cellphones, these phones allow people to easily find directions, search social media, and even browse through emails and texts.
If you are paying at least $80 each month for your cell phone but you rarely use the phone and don’t use data much, it might be time to change your plan. Cell phone providers offer at least one alternative that costs less than $80. If you have a family plan, like a plan with two numbers, switch to two individual plans if you want to.
A major concern is, is a reduction in cost necessarily a bad thing? I don’t want to deprive myself of life’s simple pleasures by getting rid of my debts too quickly, but if you can spare some extra funds, then paying off debts should be your number one priority.
In other words, your debt is only worth what it can get you. So if saving money means buying less or cooking more often, then go for it! It may take a while to get where you’re going, but take care not to forget to always keep an eye on where you are.
Keep enough of your earnings for emergencies and try not to take on any new debt if you can help it.
7) Refinance Student Loans (or other high interest debt)
Your priority should be to take care of high-interest debt like credit cards and student loans, but refinancing may not always be easy or possible. For most loan options, you’ll need a decent credit score to qualify.
If you have a good credit score, you may be able to try the likes of Lending Club or Earnest. To build your credit if you’re in a crunch, consider working with SoFi. They offer high quality loans at lower interest rates than what you might be able to find on your own, in addition to solid advice on financial planning.
In addition to loans, SoFi offers scholarships to those who have graduated from certain schools. The student must remain up-to-date on their payments for the duration of the agreement to be eligible for a scholarship.
Though SoFi won’t allow you to hold an account when you’re 60 days behind on any debts, make sure you still take the necessary steps to keep your credit score up. Even if you make a late payment, make sure you pay down the debts with the highest interest rates first. It’ll save you money in the long-term and won’t put any stress on your budget at all.
