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How to get out of debt on a low income

You want to get out of debt, but you don't make a lot of money — how can you possibly get rid of debt once and for all? Here's some helpful advice.
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Getting out of debt is hard enough when you have plenty of money coming in, let alone facing this challenge when you’re on a low income.

But here’s the thing: it is possible to get out of debt on a low income. But wait: there’s more! It’s also possible to do it without selling major assets like the house or car you don’t yet have.

Today I’m going to go over strategies you can use to pull off this major feat.

Take stock of your financial situation

You can’t fix the debt that you don’t acknowledge you have, because one of the most important elements of any debt-reduction strategy is choosing which debt to tackle first. Sit down at a computer — or with an old-school paper spreadsheet if that’s your style — and write down all of your debts.

As you’re working, make sure you list the amount, the interest, the term, your monthly payments, and the available credit limit for each debt. This will help you understand the full breadth of the situation, and give you solid numbers to work with when you create a budget (spoiler alert).

And while you’re at it, make separate spreadsheets to list all of your other monthly expenses — things like food, utilities, car payments, etc. — plus one for all the money that you have coming in from various sources.

After that, you can make a budget using zero-sum budgeting techniques

Nobody likes making a budget. But trust me: this is the only way you’ll manage to get your debt under control.

Once you know all your expenses and debts, you can go through the process of allocating your monthly income as necessary. Holly Johnson is a personal finance blogger, and she once found herself buried under a mountain of debt. She used zero-sum budgeting to get out.

“Zero-sum budgeting gives you the tools to improve your finances by teaching you how to a) live off last month’s actual income instead of income projections, b) make actionable decisions regarding your money, and c) reduce waste,” she explains.

The idea behind zero-sum budgeting is that at the end of the month, you don’t have a single cent left over because every dollar has been allocated to bills, debts, and savings. This may sound a little unsettling, but it will help you regain control much faster.

When you create your budget, the first things to take care of are savings and debts. Then you can use what’s left over for everything else. If you have to cut expenses somewhere, it comes from things like entertainment and transportation rather than debt-reduction or investments.

Look at your biggest expenses and see where you can trim fat

Once you know where you’re at regarding your debts, expenses, and budget, you must take steps to close the purse strings. You can’t get out of debt if your debt keeps growing. Because you can’t take that money from debt payments or savings, it’ll have to come from elsewhere.

Go over your budget and categorize your spending to see where you’re spending too much money — on transportation or eating out, for instance. Then make an expenditure reduction plan. Here are some ideas:

  • Buy food in bulk, especially when it’s on sale
  • Clip coupons for everything that you buy, from food to clothes to toiletries and more
  • Sell your car (if you have one) and walk or bike to work — if you’re like most people, you spend an average of $9,000 a year on your car
  • Cook more at home and eat out less
  • Cut your subscriptions for things like cable and the gym, and opt for lower service packages for necessary things like cell phones and internet
  • Bring your daily coffee from home rather than buying out
  • Always buy used: check thrift stores and classifieds when you need to buy anything, including clothes, furniture, vehicles, and even appliances

The only way to tackle your debt is to make more than the minimum payments

We’ve talked about budgets and spending and how to stop adding to your debts, but now it’s time to get to the nitty gritty details of debt reduction. The first and among the most important things to realize is this: Making just the minimum payment will result in lifelong debt.

The average American has a credit card balance of about $9,600 with a 15% interest rate. Making the minimum payment each month would leave you paying off that debt for nearly 12 years! If you want to get out of debt, you must make higher-than-minimum payments.

The best way to approach debt is to tackle one balance at a time

Now I know it may not be possible for you to make above-minimum payments on every debt every month. And don’t worry, you don’t have to. But what you do have to do is choose one debt to pay down first. While you’re doing that, continue making minimum payments elsewhere.

For instance, say you have five debts with different balances. To make things easy, we’ll say the minimum on each is $100. You’d start by making the minimum on four of those debts, but pay, say, $200 (for a total of $600) each month toward one of the debts until it was paid off.

As soon as you take care of that first balance, you can do a happy dance and start to tackle the next debt. From there, pay the minimum each month on the remaining three, and pay $300 (so you’re still paying the same $600 amount) toward the singled-out debt.

The Harvard Business Review investigated different debt reduction approaches and found that this method can help you pay off debts up to 15% faster than if you just spread the $600 evenly among all the debts.

Choosing a balance to tackle, method one: the avalanche (aka ladder)

Now comes the (slightly) trickier part: Deciding which debts to tackle in which order. The first option is known as the avalanche, and it entails paying the debt with the highest interest rate first.

Bruce McClary at the National Foundation for Credit Counseling uses a ladder analogy to describe this method. Start with the highest-interest account, and when that’s gone, “move down a rung of the ladder and apply all your extra payments to the account with the next highest rate.”

The major benefit of this method is that you’ll not only pay down your debts, but you’ll also save more money in the long run, thanks to the interest you won’t pay.

Choosing a balance to tackle, method two: the snowball

In the other camp are the people who advocate the snowball method. It’s called this because you start with the smallest debt and work your way to the biggest one, like a snowball gathering speed as it rolls down a hill.

Between a $500, a $200, and a $1,000 debt, you’d start with the $200 and finish with the $1,000. This is more a psychological approach to debt-reduction because the idea is to gain inspiration and momentum from your small initial successes.

The business mogul Dave Ramsey devised this strategy. While it’s a sound method, you may end up paying a lot more interest with this technique. However, if you have trouble staying motivated, the extra interest may be well worth it to get out of debt.

Steps to getting out of debt

1. Use a balance transfer credit card

If you are on a low income and you are trying to get out of debt, an excellent option is to get a balance transfer credit card. Here’s what happens: You move the balance of one credit card to a second new credit card, and this way you effectively pay off the outstanding balance.

And balance transfer credit cards have a huge benefit: They almost always in my experience come with a special type of promotion as an incentive for the bank to get your business. And during this period, you do not pay any interest rate at all and it’s an opportunity for you to save money on all that interest you would otherwise be paying on the lump sum you owe.

Citi® Diamond Preferred® Card

The Citi® Diamond Preferred® Card is ideal and purpose-built for balance transfers. Although it doesn’t offer any ongoing cash back rewards, it helps you pay off your debt faster, which is surely more mentally and financially rewarding than 2% back on gas!

The card offers a staggering (completed within four months of account opening) and . Having 0% intro APR on both is really important because imagine you’re paying off your old debt and you’re suddenly hit with a massive bill, whether it’s for healthcare or a car repair. You don’t want interest to start accumulating on new debt while you’re paying off old debt, so you absolutely want 0% APR on both old and new for as long as possible.

The standard APR after the intro rate expires is .

To cap it off, the Citi® Diamond Preferred® Card charges no annual fee and a relatively low balance transfer fee: So if you’re looking to pay off a big chunk of debt, the Citi® Diamond Preferred® Card is a superb option.

Card info has been collected by MoneyUnder30 to help consumers better compare cards. The financial institution did not provide or approve card details.


Wells Fargo Platinum card

*This offer is expired or no longer available.

Like the Citi® Diamond Preferred® Card, the Wells Fargo Platinum card can give you a breather on interest while you pay down your debt. You’ll get 0% APR on balance transfers for 18 months on qualifying balance transfers.

The card is also great for your budget because there’s no annual fee. After the introductory period is over, your interest rate will be 16.49% – 24.49% Variable based on your creditworthiness. Not sure what your credit score is? The Wells Fargo Platinum card also gives you access to Wells Fargo Online®, which lets you monitor your FICO® score.

Note, there is a small fee for balance transfers: 3% for 120 days, then 5%.

You’ll get a few other perks with this card, including enhanced security features and My Money Map, which helps you with budgeting. If you’re trying to knock out some debt, this feature alone can make the Wells Fargo Platinum card a great option.

2. Take a debt consolidation loan

Debt consolidation is ideal for smaller or moderate amounts of debt you may have that are going to take you more than six months to pay off.

Unfortunately, the tricky part of debt consolidation loans is that there’s no magic solution for making your debt disappear. There’s no magic wand!

The best news will be if you have a high credit score, and if you do, you can pretty easily get some pretty attractive rates. But if that’s not the case, and your credit score is lower, you will need to be super careful about diligently checking and comparing, and then comparing interest rates again.

The bottom line to remember: With debt consolidation loans, you have to religiously make your monthly payments and stay 100% committed to making some serious steps in being sure to live within your means.

Find the best personal loan offers that fit your needs:

Stay in touch with your creditors throughout the process

Believe it or not, creditors are people too, and they do have a sense of sympathy. If you find yourself in a situation where you’re in over your head or struggling, get on the phone and talk to your creditors.

According to Bruce McClary, “don’t wait until an account is about to be closed because you’ve had several months of late or missed payments. Tell the creditor you’d like to pay down your balance faster and want to know what services are available to help you manage your debt.”

The creditor may be able to reduce or eliminate your interest payments, at least temporarily. This is especially true if you’ve fallen on financial hardship recently, because of things like a job loss or medical emergency.

Switching to cash will help you reduce your spending

No matter which method you choose, cutting up your credit cards may help you stay on track as you hack away at your debts.

On average, people spend about 15% more on purchases when they use plastic.

Find an additional source of income to help you pay debts faster

An excellent way of dealing with debts is to increase the money you have to pay them off. This isn’t always a feasible option, but there are ways you can increase your income. Here are a few ideas to get the ball rolling:

  • Get a part-time job
  • Work more overtime
  • Sell some of your things
  • Rent out part of your house
  • Set your sights on and work toward getting a promotion

When you start to make a little extra income, every extra dollar must go toward your debts. That includes unexpected income like gifts, tax returns, bonuses, prizes, or any other money you come into.

Consider a balance transfer in some scenarios

A balance transfer can be a risky way to deal with debt, but there are some situations where it makes sound financial sense. One condition is that the offer must include a 0% interest rate for a fixed period of time. This could save you tons of interest.

Another condition is that the balance transfer fee is small, or ideally nil. Another caveat is that the interest rate after the introductory period must not be exorbitant.

But be aware that this method will work best if you have the means to pay down a substantial amount of the debt during the zero-interest period.

Finally, know what debt solutions to avoid

Being in debt is terrifying. It’s panic-inducing. It can make you question your goals and dreams for the future. Worst of all, it can inspire people to listen to the wrong people or make horrible choices.

There are many debt-reduction solutions out there available to people, but not all of them are created equal. Credit counseling is one such option because while it may seem like a perfect idea, having creditors reduce your debt can severely damage your credit score for many years.

Similarly, an option like debt consolidation, which takes all of your debts and rolls them into a single debt, seems great but can have terrible consequences, especially if you don’t address the root causes of the debt.


Being in debt is always overwhelming, especially when you’re trying to get out of it on a small income. But there is hope; it is possible to get out of debt.

The key to getting out of debt on a low income is making a strict and bare-bones budget, tackling one debt at a time diligently and persistently, and not giving up, no matter how hard it seems. After all, which would you rather: living sparsely for a few years or living in debt for a lifetime?

About the author

Chris Muller

Chris has an MBA with a focus in advanced investments and has been writing about all things personal finance since 2015. He’s also built and run a digital marketing agency, focusing on content marketing, copywriting, and SEO, since 2016.