How To Pay Off Debt Fast With Low Income – Easy, Effective Tips!

The majority of Americans live in debt. Usually, people in the US are saddled with five different kinds of debt: home mortgage, credit card dues, student debt and in some cases, personal loans and vehicle finance.

Having said that, I will add that taking loans or credit isn’t bad. In fact, having some debt and repaying on time helps build a superb credit score. But if you delay or default, your credit score can take a major hit.

That in turn could make it harder for you to get loans or a credit card in future. Even if some lenders do provide you with loans or mortgages with low credit scores, they could charge very high-interest rates.

Debts aren’t bad because they help you to build a superb credit score. Above that, you can also use debt to buy your own house, like the majority of Americans do, finance higher education, buy that dream car and live a normal life.

Now, let’s look at the flipside of debt.

Flipside of Debt

The flipside of debt is a poor credit score that can disqualify you for further loans and credits. Even if you get some, they would come at a higher interest rate due to a bad credit score, as I have said earlier. However, defaulting on debt repayment can actually set back your life.

Studies in the US reveal that delays in repaying student debt or education loans can set back a person’s life by as many as seven precious years. This occurs because the person has to delay buying a house and the situation also leads to late marriage or even impacts careers.

Late credit card payments mean you would end up paying higher and higher interest or Annual Purchase Rate (APR) which could sometimes cross the 32 per cent mark.

Failure to service a home mortgage on time could lead to the lender seeking foreclosure. This means, your family and you could be homeless and all the money you’ve repaid so far for the mortgage could go to waste.

The inability to repay personal loans or other forms of credit comes with legal implications. The bank credit card issuer or some financial institution could file a recovery lawsuit against you in court.

I’m sure that none of you would like to go through any of these unpleasant situations caused by an inability to repay debt on time. Before I forget, unless you repay the debt on time and step up repayments when possible, you could most likely end up paying a lot more than you had bargained for or expected.

To avoid such situations, the best solution is to pay your debt fast and still have a life.

Still have a life? Yes. That’s exactly what I said. Repaying debts fast doesn’t mean that you’ve to start living in poverty. You could continue with the current lifestyle till you repay debt and later, upgrade if you wish.

Should this sound interesting, continue reading. In this article, I will be discussing how to pay debt fast and still have a life.

Before we proceed, let’s understand why repaying debt faster is important. These facts and figures below would make it clear.

Debt Facts and Figures

According to various reliable sources, by the end of 2022, American household debt stood at a record $16.9 trillion. Such debt is in various categories and includes credit card debt, which stood at $986 billion, mortgages totalling $11.92 trillion, vehicle loans at $1.55 trillion, and student loans amounting to $1.60 trillion.

The distribution of debt varies by age, according to these sources. Different age groups have varying average non-mortgage debts. For instance, 18-29-year-olds had an average non-mortgage debt of $12,871, whereas 40-49-year-olds had an average of $27,838.

Additionally, the debt-to-income ratios across demographics have been rising, indicating a growing burden of debt on American households. This means, that more and more American households are finding that debt repayment is actually eating into their living expenses and savings while directly impacting incomes. 

Considering that debt-to-income ratios are on the rise, it is important to repay all loans and credit at the earliest. This will release the pressure on your personal finances and allow you to lead a better life.

How To Pay off debt fast? Best ways

Now, I will discuss some of the time-tested and proven ways to repay debt fast and still have a life. You could use one or more of these ways, according to your personal needs and slash debt. As your debt reduces with consistent efforts, life will surely become more pleasurable, you will experience.

1. Create A Budget

The first step towards upping debt repayment is to create a good household budget. On one side, list all the household expenses such as food, clothing, essentials such as education, transport, communications and medical expenses, if any.

On the other side, make a list of all the debts such as credit card dues, mortgages, personal loans, vehicle finance and so on. Mention the monthly instalments you’re repaying for these debts and arrive at a final total.

From your household budget, find ways and means to reduce expenses. You will come across several useless expenses in the budget such as cable TV, dining out, gym or other unused or underutilized subscriptions and so on.

Cancel these useless subscriptions because they’re a drain on your income. Use the money that’s saved by eliminating useless expenses to step up debt repayment.

2. Use the Debt Snowball Method

The debt snowball method is one of the tricks to minimize and finish smaller debts. Tackle these first because the majority of Americans have several smaller debts. These are easy to wipe out. With the money that remains after saving from household expenses, step up repayments of such smaller debts first.

Since the amounts aren’t usually very high, you will be able to clear these kinds of debts faster, without missing your life. You could step up repayments of these smaller debts on a priority basis.

That means, selecting a specific loan and finishing it off within that month’s pay. Once you have eliminated all small debts, it’s easier to focus on the larger ones, which will be fewer.

3. Debt Avalanche Method

The Debt Avalanche Method is a simple technique that could prove very useful in repaying larger debts. Identify which are your largest debts and find the reason they’re eating away most of your money.

At the top of this list would be your credit card debt. As I mentioned earlier, dues that go unpaid collect a compounding rate of interest. Step up repayments to your credit card every billing cycle and ensure that all future bills are settled.

You can continue using credit cards but settle the amount in full always. Second, tackle home mortgage and vehicle loans followed by personal loans. Repay from money saved from the budget, where possible.

4. Consolidate Your Debts

By this, I mean take a loan at a lower interest rate from a bank or credit union or other lenders and repay all your other debts that come with a higher interest. Remember, this loan amount has to be large enough to pay off every single debt you have.

That way, you’ll be repaying only a single loan and that too, at a lower interest rate. This helps save a lot of money that would otherwise have gone on servicing other debts.

In some cases, you needn’t repay a home mortgage immediately since these are usually given at a fixed interest on long-term basis. Settling other loans and avoiding future debts will help you repay this loan.

5. Step Up Earnings

One of the best ways to repay debt fast and still have a wonderful life is by stepping up your earnings. Thanks to the Internet, there are countless ways to step up earnings by working a few extra hours from home, after regular office hours.

You can enter the freelance economy and offer skills to buyers who need them. Freelancers often make a lot more money than regular office-bound professionals.

There are fantastic freelance platforms such as Upwork.com, Freelancer.com, Fiverr.com and FlexJobs.com where you can register and offer your services as a freelancer.

6. Start your Own Business

There are several small businesses that you could start from home and earn an income even while you’re asleep. Affiliate marketing is one such business. The second is drop shipping.

To become an affiliate marketer, you will need your own blog or a social media account that has a large number of contacts and followers. Drop shipping means you will tie up with suppliers of various kinds of goods and sell them through your website for a profit.

This is a very profitable business that could provide your with profit margins as high as 40 per cent, depending upon the type of stuff you’ll sell.

Wrap Up

Repaying debt and living a good life is simple. It doesn’t really need you to cut corners and downsize your current lifestyle.

Living simply is fine because it could help save a lot of money that would otherwise go on buying useless stuff or splurging on unnecessary things. Try these six methods above to pay your debt fast and still have a life.