When you have to pay off debt on a low income, you can often find yourself feeling overwhelmed and defeated. For many people, including us, your debt is a direct result of your lack of money.

It’s a vicious cycle.

The good news is that this cycle can be broken regardless of your current situation or past mistakes.

How can you pay off debt on a low income?

As you can see, there are two surefire ways to save money on a tight budget, get out of debt and break the paycheck to paycheck cycle.

1.) Decrease Expenses – Create a budget that shows everything you’re spending money on each month. Figure out what you’re currently paying for and what you can live without.

2.) Increase Income – Bringing extra money into your household will also speed up the debt payoff process. Find a great side hustle, change jobs, ask for a promotion, get bonuses, find part-time jobs, etc.

The fact of the matter is, progress is made once you increase the amount of leftover money you have at the end of the month. Decreasing expenses and increasing income will both help you achieve this goal. I’ll use our previous financial situation to demonstrate this point:

How did we pay off debt on a low income?

1. We created a budget

In 2015, we sat down to figure out exactly how much money we were paying out each month. With that information in hand, we were able to create our first budget. When we finished, we realized that we were in a bind.

We could see that we only had $128 once all of our expenses were paid. Income increases weren’t an option at the time and we were living solely on DJ’s low income from the military. We knew that we were going to have to make some difficult choices in order to achieve the progress we wanted.

2. We cut unnecessary expenses

The first thing we tried in order to pay off debt on a low income was to start cutting or reducing our expenses.

We got rid of our cable subscription, a storage unit, my car, DJ’s haircuts, my monthly hair styling and we stopped eating out as much. When it was all said and done, this was a reduction of ~$652 worth of expenses.

DJ’s Income – Reduced Expenses = $652 extra towards debt per month

That is the exact same exact thing as receiving a $7,824 yearly bonus at work because this extra money could now be used to pay off debt.

This graphic shows a few expenses you can try to reduce first

3. We made dramatic changes

The extra money we were able to save after reducing our expenses was great, but it still wasn’t enough. There was a large mountain of debt ahead of us and we wanted to make sure we could conquer it as quickly as possible.

We took a look at what our remaining expenses were and we realized that we were still spending most of our money on housing. Since we were renting a house, there wasn’t much we could do about the cost without moving. Moving was the best choice we could think of, so we started looking at our options.

Apartments in our area were the same price or higher than our current rent, so that was out of the question. Buying a house was also out of the question because we were broke. We couldn’t afford to pay for closing costs and our high debt to low-income ratio would make it difficult to even get approved for a loan.

With this in mind, we took drastic measures and moved out of our house in order to live in an RV for 9 months. This move dramatically changed our housing costs and helped us pay off debt much faster.

DJ’s Income – Expenses in RV = $1650 extra towards debt per month

4. We increased our income over time

About two months into our RV living experience, I was finally able to secure a full-time job after years on unemployment. In our minds, we knew that the universe was rewarding us for taking bold steps to fix our financial problems.

We were able to take my entire salary and apply it straight to our debt payoff since we were already used to living on one income.

DJ’s Income + Dannie’s New Income – Expenses in RV = $3650 extra towards debt per month

Increasing your income can actually lead to negative outcomes if you aren’t careful. Many people increase their income and increase their spending along with it. They fall victim to the trap of “lifestyle inflation”.

We kept our mindset the same, as if we still needed to pay off debt on a low income, even though that wasn’t exactly true anymore.

We were determined not to develop bad habits just because we had extra money at the end of the month now!

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The magical thing about paying off debt is that you gain that payment back to do as you please. Each time we paid off a card or loan we put $50 -$200 back in our pockets.

We wanted to share these tips with you to show that it truly is possible to pay off debt on a low income. We want you to know that the process can be slow but you don’t have to be discouraged because of that fact.

It takes time to fine-tune your budget, cut your expenses and eventually work towards increasing your income – but that’s perfectly okay.

As you continue to revise and work your plan, you will make progress as long as you don’t give up.

$tay Wealthy Friends,

— Dannie