As overwhelming as debt can be, it’s not impossible to live a debt-free life, even if you have a low income. Cutting down spending is the first step, but there’s more you can do to stay on top of your debts and even start getting ahead. Follow these steps to help tackle your debt:
Determine how much you owe
First things first: figure out how much money you owe. Make a list of all your outstanding bills (credit cards, loans, utilities, rent, etc) and add up what you owe. Be sure to include interest and fees. You need a clear picture of what you owe in order to start paying down your debts.
Stop taking on new debts
It might be tempting to put your expenses on a credit card, but it’s crucial that you stop taking on any new debts. Don’t open any new credit cards or apply for any new loans.
Freeze unnecessary spending
The next step is to cut any unnecessary spending. Take a look at your monthly expenses and see where you can cut back and start saving. Maybe you don’t really need all those streaming subscriptions after all. You can use Brigit to track your spending habits and keep an eye on bills.
Create a budget
Now that you know how much you owe and where you can cut back, it’s time to create a budget that accounts for your debts. A barebones budget might be a good place to start. This style is all about taking care of the essentials and saving the rest. You can read about other budgeting styles here.
Prioritize your monthly bills
Once you’ve set your budget, you’ll need to prioritize your monthly bills. Start by paying your housing, food, utilities, and car payments first. These essentials should be prioritized so you can continue to live and work.
From here, there are two methods for paying off your debts: debt snowball and debt avalanche. With debt snowball, you’ll focus on paying off your smaller debts first. By paying off small debts, you’ll pay down debts quickly and gain momentum. With debt avalanche, the focus is on your larger debt payments. Make the minimum payment on each bill and then use the additional money to pay off your debts with the highest interest rate. This helps you save in the long term when it comes to interest.
Consider a side hustle
Look into ways to earn some extra cash to help you pay down your debts faster. Check out the “Earn Extra” section in our app for opportunities.
Boost your credit score
Improving your credit score can also help you get out of debt. Lower credit scores typically see lower interest rates on credit cards and loans, which will save you money in the long term and in the future. Brigit’s Credit Builder will help you build your score for as little as $1/month.
Explore debt consolidation
With debt consolidation, multiple debts (typically those with high interest rates) are rolled into a single payment, making it easier for you to stay on top of what you owe. Debt consolidation should only be used if you have the money to make the new monthly payment. You can learn more about the pros and cons here.