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Best ways to pay off debt with low income

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Once you become caught up in a tangle of debt it becomes harder and harder to escape from your debts. This situation is made worse for those on low income who barely receive enough to make ends meet little own pay the huge amounts of interest that some credit and other lenders charge them.

This article is for anyone who wants to know the best ways to pay off debt with low income or who is poor or skint and is struggling with debts.

We will also discuss some of the best ways that people on low income can use to help them clear their debts and improve their financial positions.

List all your debts

The first thing to do is to write down the amounts of money you owe different lenders. You need to dig out your latest credit card and loan statements or look them up online if you can.

You then need to write down for each debt the following information.

  • Name of who you owe the debt to
  • How much debt you owe them
  • The interest rate being charged on the debt
  • The minimum payments allowed

You should then add up all the debt you owe so you can see clearly who you owe money to, how much you are being charged and how much you owe in total.

Seeing the list of your debts written in black and white is scary and doing so is not enjoyable but it is far better than hoping the debts will go away as this would only make things worse.

Knowing how much your debts are and how much you are being charged is therefore the important first step on getting yourself on the path to clearing those debts.

Piggy bank with no money
Piggy bank

Decide your debt repayment strategy

If you’re on a low income you are unlikely to have any large amounts of money squirreled away that you can use to repay your debts.

Instead, you need to decide on a debt repayment strategy that will allow you to constantly chip away at the debt by making repayments so that the amount of debt you owe starts to fall and eventually disappears.

The three most popular approaches are debt consolidation, the debt snowball approach and the debt avalanche approach. Debt consolidation is when you merge all your debts into one big manageable debt. The debt snowball approach is when you pay off your smallest debts first. The debt avalanche method is when you pay off your debts charging the highest interest first.

Debt consolidation

Debt consolidation is where you consolidate all your existing debt into one large debt charging you a lower interest rate than your current monthly rate.

Having just one debt can be very appealing and makes it easier to keep track of your debt and the interest payments.

You can save money if you can take advantage of introductory rates. Some credit cards offer 0% introductory offers lasting 6 months. If you can transfer your existing debts to these you could save a lot of interest. This is one of the best ways to pay off debt with low income.

You could then use this saving to repay your debt therefore not only could you reduce the interest rate you are charged you will be able to pay more against the debt to bring it down faster.

Another option is to borrow from friends or family.

This can be difficult and embarrassing if you have to admit to being in debt. However, if friends and family are sympathetic they may lend you enough money to repay your debts and ideally not charge you any interest in the process. If they do charge you interest hopefully it will be at a significantly lower rate than you are currently paying on your debt.

The debt snowball approach

The debt snowball approach involves going down the list of your debts that you prepared earlier and focusing on paying off the smallest debts first.

It is important to keep making your minimum repayments to your other debts but you use any spare money to pay off the smallest debt first.

As you roll down your debts from the smallest to the largest the speed at which your debt is reduced speeds up.

The idea is that completely paying off a small debt makes you feel better. It gives you the confidence that you are on the right track and if you can pay off one debt there is no reason why you cannot pay off another and another until all your debts are cleared.

The debt avalanche method

The debt avalanche method still involves paying off your debts but instead of focusing on the lowest amount of debt, it focuses on the debt with the highest interest rate.

This is the method I used previously as it is the best way to repay your debts whilst being charged the least amount of interest.

Say you had 3 debts

A credit card, £500, 20% interest

B credit card, £1000 15% interest

C Personal loan, £2000 10% interest 

Under the debt consolidation method, you would look to merge all 3 debts into 1 new debt that charges less interest than the average of your existing debts. Under the snowball method, you would focus on paying off A first, then B, then C. Under the debt avalanche method, you would pay off C first, then B, and finally A.

Stop taking on more debt

Now that you have a debt repayment plan in place you need to make sure that you do not take on any additional debts.

You need to avoid taking on any more debt. This means avoiding turning to credit cards to cover seasonal expenses such as Christmas presents. You also need to avoid taking any payday advance loans or any other type of debt as this is the only way you will break this cycle of debt you are in.

Build a budget

Taking the time to build a budget can reap rewards and help you identify your income and biggest expenses to allow you to get out of debt.

You don’t need to spend a lot of time building a budget it can be done with a pen and paper.

The key thing is that it allows you to see where your money is going and once you know this you can do something about it.

A budget allows you to take control of your finances. Building a budget is strongly recommended if you want to pay off debt with low income as it allows you to see every penny coming in and going out.

Reduce the cost of your debts

The biggest problem with debt is the amount of interest you are charged as this takes money out of your pocket that you could potentially use to repay the debt itself.

If you could reduce the interest rate and use that money to repay part of your debt that would definitely speed up the time it takes you to repay your debt.

There is nothing to stop you from contacting your debt providers and asking them for a rate cut or shopping around for cheaper debt elsewhere.

Bank loans are normally cheaper than credit card debt but some credit card providers do offer 0% introductory offers that might be worth taking out depending on your circumstances.

You can use price comparison sites to find these Balance Transfer credit cards. These credit card comparison sites can normally tell you in advance what your chances of being accepted for a new credit card or loan are.

To prevent your credit score from being ruined by numerous credit checks the price comparison sites tend to use soft checks to confirm your identity. These soft checks do not dent your credit score as much as hard searches which aim to assess your credit history.

A lot of hard searches could indicate you have applied to borrow money from lots of different lenders and been declined, so soft searches are the best way to go.

Use any extra money to repay debt

During the year you may receive a bonus at work, a tax rebate, cash from friends and family for birthdays, Christmas, or special events.

Irrespective of the amounts involved if you can put this money against your debt it will make a difference, even if it is only a few pounds. Every penny counts when you are in debt and on a low income.

Make more money

The more money you make the easier it should be to pay off your debts. The hard part is generating extra money in the first place.

You could get more money from your current job by asking for more hours or a pay rise. Your current employer might say no but if you don’t ask you don’t get.

If your current employer won’t help or it isn’t enough you could consider getting a part-time job either in the evenings, mornings or weekends.

Alternatively, you could have a look round your house, in your attic, or in your drawers to see if there is anything you do not use that you could sell on eBay, Facebook, or elsewhere to make some extra money.

Side hustles are growing in popularity in the UK as more and more people look to earn some extra cash to either pay off their debts or to live a better life.

Side hustles

The flexibility of side hustles is appealing to many people looking to get out of debt as they can earn extra money to repay their debts at a time that suits them.

A side hustle can be anything that allows you to make money.

It can be dog walking, or pet sitting, selling coffee, blogging, virtual assistance, transcribing or anything that other people will pay you to make or provide them with.


What are the best side hustles in the UK?

23 Great ways to make money on the side (2023)

How to start a side hustle

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Other sources of debt help

Sometimes, no matter what you do debt can just be overwhelming. It can cause anxiety and depression. When you start to suffer from these then it is time to speak to someone who can give you specific advice given your circumstances and someone who can listen to your debt issues.

Both Stepchange and Citizens Advice can offer constructive and helpful advice on the best ways to pay off debts on low income.

They can talk you through different options to deal with your debt problem including debt relief, bankruptcy and debt management plans. This will allow you to find the best way to pay off your debts.

Conclusion best ways to pay off debt with low income

If you are weighted down with debt and on low income then there are things you can do to reduce your debt including paying off credit card debt using the snowball method, the avalanche method or by consolidation your debt.

Unfortunately, the debt will not go away on its own so you will need to budget to reduce costs to allow you to pay off your debts faster. Alternatively, you can try to make more money or to reduce your expenses.

Paying off debt with a low income is not easy but it is possible if you are willing to make sacrifices.

Further reading

11 Smart financial habits to keep your money on track

Credit Cards v Debit Cards

23 Great ways to make money on the side (2023)

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