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Figuring out how to get out of debt when you’re broke is rough!
You don’t have the luxury of throwing thousands a month towards your debt balances, but that doesn’t mean that it isn’t possible for you.
In fact, your chances of ditching debt are just as good as anyone else’s!
Don’t believe me? Keep reading!
Tips to get out of debt when you’re broke
Come face to face with your spending
I had a conversation with my friend the other day about her “missing money.” By “missing money” I mean money she assumed had just jumped out of the window but in reality, it was mindlessly spent on crap she didn’t need.
When you’re not accountable for your spending, you may have money leaks that are sending your finances up in flames. What’s worse is that you probably would have never caught them had you not started watching where your money was going.
The easiest way to track your spending is with a zero-based budget. This means that you will assign every single dollar a specific job so that nothing is left without a purpose. So, if your monthly income is $2,500 then all $2,500 should be budgeted for.
If you don’t have a budget yet don’t worry, I’ve created a free eBook all about budgets which includes a budget sheet. Click here to grab it.
Another way to track your spending is by writing down each transaction you make. Some people like to write every single transaction, like a monthly bill, and some people like tracking specific budget categories.
I only track my funds (my discretionary expenses), and grocery purchases (my variable expense) because my bills are fixed and therefore predictable.
If you find yourself overspending, first determine if the expense is essential (you need it) or non-essential (you don’t need it).
- For essentials, review your budget to make sure the amount you’ve assigned to each category is realistic.
- For non-essentials, come up with a strategy that will keep you within your budgeted amount.
As time progresses, you will find yourself with more money to use for debt payments because you’re becoming more intentional with your spending.
Posts to check out next!
Find your total debt payment
Nothing creates more chaos than disorganization!
Being low on income means that you don’t have a lot of money to use. If you want to get out of debt when you’re broke you have to know how much you can realistically apply to your balances.
Have you ever bit off more than you could chew by sending off a payment that was more than what you could afford? Yea, this is to prevent that!
To find your debt payment, add together all of your minimum payments, regular expenses, and savings contributions. Then, compare the total to the amount of income you have remaining.
Having a budget makes this super easy because you’ve already written down where all of your money is going.
Based on how much spendable income you have, determine how much of it you can safely add to your minimum debt payments.
Here’s How it Works
Jasmine has four types of debt: credit cards, student loans, an auto loan, and a personal loan she took out for her laptop. The minimum payment amounts are:
- $350 – Car payment
- $120 – Credit card minimums
- $85 – Laptop payment
- $55 – Student loan payment under the Income-Based Repayment Plan (IBR)
From her budget, she sees that her expenses (minus her debt minimums) cost her $1,500 a month. She brings home $2,400 after tax.
This means that, after contributing $100 to savings, she has an extra $190 she can apply to debt.
Jasmine decides to add an extra $100 to her car payment and $90 to her credit card payments. Her total “debt payment” is $800 a month.
Considering that your income does not change dramatically, this total debt payment will create consistency in your debt-free journey and you can work your goals around this amount.
Be proud of what you can apply to debt and trash the idea of having to pay thousands each month. It’s not realistic for everyone.
Focus on staying consistent, and pay more than the minimum payment!
Leverage extra money
Whether it’s a tax return, side hustle income, or a $20 refund, use all extra money wisely!
Many of us have been in a situation where we’ve gotten a little extra moolah and suddenly the itch to purchase the things we’ve “always wanted” becomes unbearable. So, we scratch!
Separating wants from needs sounds like a cakewalk, but it’s something that requires constant practice and mindfulness.
This is one of the easiest ways to get ahead financially so the next time you find yourself with extra money ask yourself, what can I do to help me reach my goals faster?
I know that if it weren’t for me strategically using my large sums of money that I would not have been able to pay off over $18,000! I was broke, and could barely afford the minimum debt payments!
No, you don’t have to use every single cent “responsibly,” but attempt to apply at least 50% to debt. Whenever I get a refund or return, I apply 70% to debt, save 20%, and use 10% as personal money!
Related reading: 10 Easy Ways You Can Make Extra Money From Home
Stash cash for a rainy day
Today, if you were handed a bill totaling $400 would you be able to pay for it without sinking further into debt?
If your answer is no, you need to have a stash of cash!
When you’re low on income, your expenses are almost equal to your take-home pay thus creating the paycheck to paycheck lifestyle. If life throws you a curveball, and oh it will, you’ve got to get ready to swing the bat! Otherwise, you’ll be hit dead in the eye and it won’t be pretty.
Basically, expect the unexpected to protect yourself and your debt-free journey.
It’s recommended to save at least 3-6 months’ worth of your expenses in an “emergency fund,” but honestly anything will help!
You can opt to stop your extra debt payments until you get your savings to a comfortable number, or tackle both at the same time. It’s totally up to you as there is no right or wrong way to go about your journey.
If you’re terrible at saving money, don’t count yourself out so quickly. I went from barely being able to contribute $15 to saving $400 with ease. I’ve accomplished this all while paying off debt on a single income and I’m teaching you how with a FREE savings course.
Related reading: Building an Emergency Fund – Save Up Fast!
Just keep going
This is the last tip I want to leave you with, but most important. There are far too many people that throw in the towel when things get tough! If you want to pay off debt when you’re broke, you’ve got to keep going!
Your balances may not drop as quickly as you would like. Sometimes you may only be able to contribute very little to debt, but persistence is key!
Think about it, if you quit then what is going to happen? Nothing in your favor that’s for sure!
You’ll only find yourself in a worse situation, being eaten alive by interest. Those balances will always be there until you do something about them. That is unless you hit the lottery but chances are slim. Sorry, Charlie.
I know it can get overwhelming, but hard work and dedication will create the results you want.
To keep yourself laser-focused, try tackling one debt balance at a time using one of the following methods:
- Snowball – This method involves paying off the smallest debt first. It’s great for beginners because you get quicker wins, which helps to increase momentum. Once the smallest debt has been paid, roll over the extra money to the next smallest balance.
- Avalanche – This method involves paying on the debt with the highest interest rate first. You save more money in the long run and ultimately shorten your debt-free journey.
Not sure which method is right for you? Read The Debt Snowball vs Avalanche. Which is Right for You?
There’s no magic wand you can wave to get out of debt when you’re broke, but developing a strategy to maximize your income and sticking to it is a surefire way to achieve financial freedom.
Btw, just in case no one has told you yet, I believe in you and I know you’ve got the juice!????
My Fave Resources
Break Up With Debt– I wrote this eBook to prove to others that income shouldn’t hold them back. You CAN pay off debt when you’re broke!
I ripped through more than $28k in under 4 years on a single, moderate-income and I’m giving you all the strategies that I used to do it!
The “Broke” Girl’s Guide to Saving Money course. Don’t know where to start when it comes to saving money? Or, do you wind up quitting because you always find you need the money you contributed right back?
If so, you need this FREE course!
- The first step you need to take towards saving (it’s not what you think)
- How to find a balance between bills, saving, and debt
- The one thing you need to do to stop withdrawing the money you’ve saved!
- How to earn the most for your money
- How to keep your head in the game so you don’t wind up quitting…again