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04.12.2018

How to Get Out of Debt Fast on a Low Income

Do you feel like you are drowning in debt, and there is no way out?  Well, lucky for you, there are several options to conquer your debt, even with a low income!  That’s right, you can fight those debts, despite making less than you desire.  If this situation applies to you, continue reading to learn how Creditfix can help you to destroy your debt!

Good Debt vs. Bad Debt: An Overview

You are probably thinking, “Is there even such a thing as good debt?”  The answer is yes!  Let’s face it, most people need to borrow money to make big changes in their life (like buying a new home or car).  The difference between good debt and bad debt is that good debt is manageable, whereas bad debt is unmanageable.

If you are someone who has manageable debt, it means that you can securely make the repayments that are required to pay off your debt.  If you are someone who falls under the category of unmanageable debt, then you are either 1.) suffering from debt repayments you cannot afford, or 2.) you are having difficulty meeting repayment deadlines.

Some reasons that you may be experiencing unmanageable debt could be due to redundancy, unemployment/ underemployment, time-off work due to illness, or new costs (like a baby).  All these factors can affect anyone, but more importantly, know it is not your fault.  Don’t let your unmanageable debts control your life when Creditfix is just a phone call away from helping you to better understand your debt.

What Types of Debt Exist?

So, now that you understand the difference between good debt and bad debt, you must know what type of debt is affecting you.  When we look at different types of debt, there are two main categories that most people identify with: secured debt and unsecured debt. 

Secured debt is when money is taken out against an asset.  What does that mean exactly?  Well, when money is taken out against an asset, that means that the money borrowed is to pay for a valuable item (such as a home).  This is where mortgages and car payments come from.

Essentially, you are expected to make repayments to a guarantor, the person who loans you the money, to buyout the assets you borrowed money for.  When you fail to make these repayments, you become at risk for repossession of whatever asset you cannot afford to make your repayments on

Contrarily, there is unsecured debt.  Unsecured debt is different because there is no guarantor that you are paying back (which means there is no repossession that will take place).  This type of debt is common if you own a credit card or have taken out student loans.

Although there is no repossession that takes place with unsecured debt, there is still risk when you fail to make repayments.  Instead of repossession, you may have added late fees to your debt, but worst of all, your credit score can drop dramatically (which causes more problems for you).

It is important to consider the following when you are thinking about borrowing money: interest rate, repayment amount, repayment term, and late penalties.  

How to Get Out of Debt Fast on a Low Income

Credit Score is CRUCIAL

Do you remember when we talked about unsecured debt, and how a drop in your credit score can cause more problems for you?  I’m sure you were wondering about that, so let’s talk about what it means.

There are several ways you can establish credit, just like there are many ways you can hurt your credit.  For example, if you invest in a credit card, and your repayments are consistent and manageable, it can help your credit score.  That’s right; manageable credit card debt can boost your score.

On the other hand, unmanageable credit card debt can hurt your credit score.  Debt from loans and credit cards become unmanageable when you are 1.) spending too much with a credit card and cannot repay it fast enough, 2.) when your credit card or loan payments are too high, or 3.) when you fail to meet the deadlines for repayment.

How will Bad Credit Affect You?

Now that you understand why your credit score is crucial, let’s talk about how bad credit can directly affect you.  Information provided by the balance has provided a list of outcomes that may occur if you are overwhelmed by credit card and loan debt.  We will list some of those now:

High Interest Rates: If you are not paying off your credit card and loans with ease, you may be subject to increased interest rates on those two things. If you can’t afford your repayment plan now, just imagine how much harder it will be with increased interest!

Rejection on Loans and Credit Cards: If you were to lend somebody money (let’s say for a car), and they could not repay you, would you trust them to take on another loan from you? No? Exactly. If you are unable to meet the requirements of your current repayment plan, how could you be trusted to pay off another one?

Renting Apartments: If you are looking for an apartment with a poor credit score, you may have a very difficult time. Most landlords will not trust you to be able to pay monthly rent payments.  Therefore, they have two options:

1.) deny you from renting their space or

2.) making you pay an even higher security deposit, that you will likely not be able to afford.

Cell Phone Contracts: Looking to buy a new phone? Well, like the situation with the apartment, cell phone companies will either deny you from being able to have a financial contract with them or charge you a high security deposit.

Insurance Premiums Increased: If the insurance company sees your credit score is low, or going down (which they will notice), they can increase the amount you pay for their service.

With that being said, the more unwanted and unmanageable debt that you accrue, the more likely will with have to make some big financial decisions.

Knowing if You are on the Low

You are reading this article because you 1.) are likely suffering from the grip of debt, or 2.) trying to pay off your debt with a low income (or both).  It is good to know where you stand with your income, and to know how low your income compares to others.

According to Instant Offices, the reported average salary of someone living in the UK is about £25,000 per year.  Let’s keep it simple: assume anything below that average income puts you at a lower income; anything above it will put you at a higher income.  Now, if you are identifying yourself with the lower income, think about how difficult it may be for you to pay off some of your debts…

Do you REALLY need that?

Do you ever find it hard to separate your wants from your needs?  Of course, we all do!  But, if you could learn to control your spending by limiting what you purchase (as far as your desires), you can save A LOT of money.  And that money that you save (instead of buying that new tv) can go toward all that unwanted debt.

So, how can you start to keep track of your purchases to see where your spending is going?  If you said, “make a budget”, then you are correct!  Budgeting is an easy, effective way to see where your money is going, which can help you make changes in your spending.

You can budget online with our budget planner, or the old-fashioned way (using a pen and a finance notebook).  You can even download one of the various apps that exist for budgeting such as, Mint, Wally, Goodbudget, Simple, and several others.  In other words, there are numerous ways to budget, which will help you to become a better, more aware spender (and saver)!

Start Saving Now!

Now, you have your budget, and you notice that you have some extra money left over.  What do you do with it?  Spend it on some cool new outfits?  No way! You save it.

The best way to save money (in a way that you can visually see your savings accumulating) is by opening a savings account with your bank.  By doing this, you will always know how much you have, you will see the increase as you continue to save, and the more you save, the less you will want to spend!  It may seem ironic, but it is true.

When you know you have extra money, it makes you feel more secure if an emergency (such as car repairs or hospital bills) arises. Also, you will have extra money that you could use to pay off some of your debts, especially if you are short on money for the month.

You are also probably thinking, “I can barely afford my bills now, how can I put money into savings?”  Great question!  The answer is that every little bit helps. Let’s do some math.  If you put £10 in your savings every pay period (you get paid twice per month), by the end of that month, you will have £20.  How about in a year?

Well, take that £20 you saved for one month, and multiply it by 12.  That would come to be £240 in a year!  Still doesn’t seem like much? Let’s take that £240 and multiply it by five years.  Now you would have a total of £1,200 at your fingertips!

The point is… saving money is smart and can help to prevent future debts.  With savings, you will always have a cushion to fall back on when you are in a financial rut.

How to Get Out of Debt Fast on a Low Income

Find Ways to Make Extra Money

When someone tells you to try to make extra money, it can sound intimidating.  It may sound to you like, “get a second job.”  But you don’t need a second job to make extra money, you just need to recognize the resources around you!  There are many ways that you can make easy money, and I will tell you how right now!

Yard/ Garage Sales: We all have some unwanted stuff lying around the house. Spend a day deciding what you really need (remember: separate your wants from your needs). Whatever you don’t need, get out there and sell it to your neighbors, friends, and community!

Sell Online: Not everyone wants to spend a whole weekend setting up tables and lugging their belongings outside to sell (especially when you may not have a good turnout).  Fortunately, it’s 2018 and we have technology!  Post some of your unwanted items on Craigslist, Facebook Marketplace, eBay, etc.  It’s easy and you can do it from your couch!

Work Overtime: No one really wants to work overtime, but it can really make a difference in your next paycheck. Talk to your boss about working overtime and see what wages you may receive from working extra (if permitted by your employer).  You may be satisfied with the increase in your pay, just by working a little bit

Help Somebody: What skills do you have? Think about what you are exceptional at and offer that service to someone in your down time!  It could be as simple as cutting grass, writing an article, helping someone move in to a new home, or selling your crafts (like a painting or homemade candles).  Simple tasks can get you easy cash!

Those are just a few ways that you can make some extra money.  With today’s technology and ability to communicate with others, making extra cash can be very simple!  So, think about ways you can start making extra money, without having to get a second or third job. Whatever money you earn that is considered extra, you can either 1.) save it or 2.) pay off some of your debt with it.

Preventing Future Debt

Imagine that you went from having unmanageable debt (let’s say from unsecured credit card debt) to manageable debt in the course of a year by following all the steps provided to you in this article.  Well, that’s excellent!  But aren’t you afraid that debt may present itself to you again in the future?  Well, Creditfix gives multiple solutions on how to prevent future debt.

  1. Be Aware: Although the chaos of daily life can distract you from being fully aware of your financial situation, take a minute to calculate where you stand financially.  Knowing how much you have, when your next pay is, and what bills you have coming up can help to ease A LOT of stress for you (this goes back to budgeting).  Do not avoid what must be known; take control of your finances.
  2. Keep on Saving: Remember that savings account? No matter how much money you invested into your savings (whether it be £1 or £100), you still have some extra money!  By continuing to save, you are preparing yourself for any future financial crisis you may experience.  Preparation is key.
  3. Don’t rely TOO much on Credit: Credit cards have the reputation of only being used to buy extravagant things (like new fur coats, or the newest Apple product), but some people use credit to pay for almost anything and everything (groceries, bills, etc.) Relying on credit routinely can make your debt grow fast, which can lower your credit score and put you in a financial bind.  Try to control how much you are purchasing with credit to prevent declines in your credit score.
  4. Limit Yourself: Are you seeing this theme that seems to come with debt? The theme is that debt starts to go away when you start to take control of your spending.  If you are one to go out often (to dinner dates or late-night bars), limit how much you spend (or attend) during your outings

Don’t Forget to Treat Yourself

Saving money and paying off your debt is great!  But you still need to treat yourself occasionally.  If you become obsessed with saving, you may not want to spend any money at all, and sacrifice even things you need, just to save.

You can find ways to treat yourself without going overboard on your spending.  That’s right! You can indulge a bit and still save.  An easy way to do this is set financial goals for yourself.  After you reach a financial goal, spend some money on yourself (see a movie or have dinner with friends).

You could also open a third savings account (once your debt is manageable) just for yourself.  Isn’t that nice?  A savings account just for you to spend on leisure activities!  Instead of putting £10 (like we discussed previously) in your personal savings, cut that in have and put £5 in.  It will add up and give you a little extra spending each month (all for you)!

It’s OK; You are NOT Alone

Sometimes suffering from debt can make you feel alone.  It may cause you to feel poorly about yourself, and raise questions like, “Am I working hard enough?”, “Am I a failure?”, “Will this ever go away?”

The good news is: You are not a failure; it will go away.  So many people in the world suffer from financial crisis, but here’s a secret: unmanageable debt is only half of the problem… taking the steps to eliminate your debt completes the circle. 

If you are struggling with any kind of debts give one of our friendly advisers a call on 0808 2085 198 to discuss what options are available to you.

 

 

 

 

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