How To Get Out of Debt on a Low Income
10 MIN READ
Published January 23, 2024 | Updated February 08, 2024
Debt can be a heavy burden, regardless of your income. However, if you’re earning a low income, paying off debt can seem especially difficult. The average American has a $6,088 credit card balance and $11,692 in a personal loan balance. With higher interest rates, paying down these balances is not easy.
If you’re finding it difficult to manage your debt balances, there are many strategies to explore, such as negotiating your loans and avoiding new debt. You can also check if you qualify for low-income debt relief options or government financial benefits that make it easier to pay off debt.
How Low-Income Debt Relief Can Help You
Low-income debt relief is the same as regular debt relief. However, there are many strategies to relieve the burden of debt that can be used even by borrowers with lower incomes. The right strategy can help you pay down your debt and free up money in your budget so you can use it for planned expenses or to set up an emergency fund.
Debt relief options provide you with a concrete plan to follow, which helps keep you on track for repayment and motivates you. Many programs also help you save money in interest charges or by negotiating the amount you owe. Paying off your debts will also provide you relief from financial stress.
Challenges Faced by Low-Income Families
Many low-income families have to choose between paying off debt or saving for retirement. In worst-case scenarios, they have to choose between debt repayment and paying for everyday necessities. They often resort to using credit cards to pay for necessities, which adds to their debt and worsens their situation.
Ways To Get Out of Debt on Low-Income
|Debt Relief Options
|Government Assistance Programs
|Avoid taking on any new debts.
|Apply for a debt consolidation loan or balance transfer credit card to combine multiple debts into one.
|Apply for government benefits like: Temporary Assistance for Needy Families (TANF). Supplemental Nutrition Assistance Program (SNAP). Medicaid. Public housing programs. Unemployment benefits.
|Reduce expenses by using coupons, cooking at home, lowering utility bills, and canceling subscriptions.
|Consider debt settlement to save up to 50% before fees on enrolled debts.
|Check your eligibility for: HUD’s housing vouchers program. Veterans of Foreign Wars Unmet Needs Program grant. Disability housing grant.
|Increase income through overtime, freelancing, or side hustles
|Speak to a lawyer to check if Chapter 7 or Chapter 13 bankruptcy is right for you
|See if you qualify for student loan forgiveness under: Public Service Loan Forgiveness Program. Recent Biden-Harris Administration loan forgiveness program. Total and Permanent Disability Discharge Program
|Negotiate with lenders to lower your interest rate
|Use debt snowball or debt avalanche methods to speed up debt repayment
Low-income debt relief may be challenging, but you can achieve it by carefully making a budget, increasing your income, and creating a repayment plan you can stick to. Explore some of the strategies we’ve discussed below to see if they may help in your situation.
Don’t Get Into New Debts
When you’re living paycheck to paycheck, it can be challenging to manage your monthly expenses, but if you want to get out of debt, it's important to stop adding to it. It’s particularly important to stay away from high-interest debt like credit cards and payday loans.
Once you’re trapped in a cycle of debt with payday loans, it’s hard to get out of it. Find ways to manage your current expenses without resorting to credit.
“The key is not to get so overwhelmed that you take on more debt to offset what you owe,” shares Teresa Dodson, debt expert and founder of Greenbacks Consulting. “Reduce your expenses as much as you can. Every little bit helps. Even $10 a week can add up,” says Dodson.
Cut Your Spending
You may need to reduce spending in some areas to start chipping away at your debt balances. Track all your expenses and take a look at areas you can start working on. With a few lifestyle changes, you may be able to free up some cash in your budget.
Consider using coupons for grocery purchases, cooking home-cooked meals, canceling subscriptions, looking for free entertainment, lowering your utility bills, and switching to less expensive phone plans.
Earn More Income
If you’re not able to make any room in your budget for debt repayment, look for ways to increase your income. Use your free time to start freelancing, consider starting a side gig like food delivery on the weekends, and use that extra cash to make debt payments. The extra income can help you get out of debt faster.
Negotiate Your Loans
If you’re paying high interest rates on your current debts, contact your lenders to negotiate a lower rate. If your account is in good standing and you’ve made on-time payments in the past, your lender is more likely to respond positively.
A lower interest rate can help you save money over the life of the loan and help you pay down the balance more quickly.
Use These Two Smart Methods To Pay Your Loans
Once you’ve taken care of your monthly expenses and found ways to free up money in your budget, you can focus on paying off your debts. Use smart repayment methods to bring down your balances quickly.
1. Debt Snowball
The debt snowball repayment method involves identifying your lowest debt balance and focusing on paying it off completely. Continue making minimum payments on all other debts. Once you pay your smallest debt, roll that money to pay off the debt with the next-lowest balance until you’ve paid off all your debts.
2. Debt Avalanche
With the debt avalanche method, you’ll focus on repaying your highest interest-rate debts. You’ll continue making minimum payments on other debts. By focusing on settling debts one at a time, you’ll see quick results and will be motivated to continue repayment.
Consider These Top 3 Debt Relief Services To Pay Off Large Debts
If you have unmanageable debt and can’t find a way to bring it under control, it may be time to consider debt relief options. Many companies offer low-income debt relief services that may be suitable for you.
1. Debt Consolidation
Debt consolidation involves rolling multiple debts into a single loan to simplify repayment and get better terms. This option is best for borrowers with a good credit score, those with multiple unsecured debts, and those who will be able to secure a better interest rate to replace their existing debts. You can take out a new loan or use a balance transfer to consolidate debts.
2. Debt Settlement
A debt relief company may suggest debt settlement if you have over $10,000 in unsecured debts and late fees and are three to six months behind on your monthly payments. Debt settlement companies with your lenders to settle your outstanding debt for less than you owe.
Debt settlement may help you save up to 50% before fees on debts enrolled. With a lower lump sum settlement amount, it may be easier to save money to pay off your debts.
3. Personal Bankruptcy
If you can’t pay off bills, have more debt than assets, or have financial hardship, filing for bankruptcy may be the last resort option to get a fresh start. For individuals, Chapter 7 and Chapter 13 are the two main options available.
Bankruptcy is a major financial decision that may impact you for several years, so it's best to speak to a bankruptcy lawyer to decide if it’s the right option for you.
Consider Government Debt Relief Options
Other than the low-income debt relief options we’ve listed above, you can also check to see if you qualify for government assistance programs. While there are no government programs specifically to help you with credit card debt, mortgage payments, or medical bills, financial help is available in many other forms.
Government Debt Relief Programs
There are no federal government debt relief programs. However, you can get financial assistance through other programs to help you with other living expenses. The money you save can then be used for debt repayment.
Consider applying for food and nutrition programs like the Temporary Assistance for Needy Families (TANF) or Supplemental Nutrition Assistance Program (SNAP), unemployment benefits, Medicaid, and public housing programs.
If your family is designated as low-income based on the federal poverty guidelines, you may qualify for one or several of these programs.
Debt Relief Grant Money
You may also qualify for debt relief grants that can help ease the financial burden. For those qualifying, there’s free money to help pay bills, housing, and other expenses that don’t need to be paid back, freeing up your income for debt repayment.
The HUD’s housing vouchers program is one of the main grants you can apply for if you qualify. The program pays your landlord directly, helping you save a considerable amount of money on rent. However, the wait list can be years long.
If you’re a veteran, you may also qualify for a $2,500 grant through the Veterans of Foreign Wars Unmet Needs Program to pay for daily necessities. Disabled veterans may qualify for a disability housing grant to purchase or adapt a home based on their mobility needs.
Student Loan Forgiveness
If you have outstanding federal student loans, you may also qualify for student loan debt relief programs, such as the Public Service Loan Forgiveness Program.
If you’re an active military service member or a veteran, you may be able to get loan forgiveness through the Total and Permanent Disability Discharge program. You may also qualify for loan discharge under the recent Biden-Harris Administration announcement.
Research Your Options To Get Out of Debt
If you’re seeking low-income debt relief, there are many options available. Start by making a budget and by taking a look at your income and debt obligations. This will help you determine the right repayment strategy based on your financial situation.
If you feel overwhelmed with loan payments, have too much debt, or are dealing with debt collectors, consider a professional debt resolution program, such as debt settlement or debt consolidation. If all else fails, consult a bankruptcy lawyer as a last resort option.