Getting out of debt is hard on its own because a large part of what’s supposed to be disposable income goes down the drain. We are used to paying money in exchange for goods or services but you won’t get any ‘tangible’ stuff in return when you send out checks to your creditors. Paying off debt while struggling with low-income finances is much harder because your income is probably not yet enough to make ends meet.
Many families in the U.S. fall under the low-income category and they don’t even know. You can be an professional with a college degree and still be a low-income earner despite your seemingly ‘elevated’ social class. In 2014, the US Census report classified a low income household as – any 3 -family earning less than $38,110, any 4-person family earning less than $48,016, or any 5-person family earning less than $56,504.
Hence, one of the salient factors that might make it hard for people to get out of debt despite their best efforts is that they are simply not earning enough money to get out of debt easily. Nonetheless, you can get out of debt (it might take longer) even on a low income if you follow the right strategies. This piece provides information for getting out of debt faster regardless of your income level.
Start with the Maths
To get out of debt despite a low-income financial situation, you’ll need to start with a simple maths to detail the reality of your finances. You might never have considered yourself a low-income earner because you are a professional but a 7-person family earning less than $70,862 is still a low-income household.
After you’ve done a reality check on your earnings, you’ll need to do a reality check on your expenses. To keep your finances healthy, your income must be higher than your expense – you can apply the money left over after deducting expenses from income towards, saving, paying down debts, investments, or retirement.
To get a clear picture of your financial health, you’ll need to take the time to write out all your expenses and liabilities. Your liabilities include your debts –credit card debt, student debt, mortgages, and insurance among others. Your expenses include feeding, transportation, entertainment, utilities, and other miscellaneous bills. You may want to commit to writing down your expenses for a full month so that you can have a full understanding of where you money goes each month.
Start cutting down on expenses
You’ll need to start cutting down your expenses in order to free up more money that can be applied to paying down your debt faster. Of course, you might need to make some hard choices – but desperate times call for desperate measures and you’ll need to exit your comfort zone if you really want to get out of debt fast.
For instance, your housing expenses (rent or mortgage) should ideally not take more than 30% of your income; yet 1 in 4 Americans spend as much as 50% of their income on housing. If your housing expenses are more beyond range of affordability for your income bracket, you’ll need to consider moving a ‘humbler’ abodes. You may want to consider getting roommates/flatmates to split the costs. If you live in a touristy city, platforms such as AirBnB can also provide you with a chance to pass part of your housing bills to others.
You’ll also need to cut your transportation costs – you can walk or cycle short distances instead of taking a taxi – your waist will be slimmer but your wallet will be fatter. If you have two cars in your family, you might want to ditch one of the cars and start planning your driving routes with one car for the family.
Don’t hesitate to ask for help
In some instances, getting out of debt is not a battle that you can win on your own without help. You might need help in the form of motivation, encouragement, financial education, updating your personal finance skills, debt consolidation, or debt management among others. Many people are struggling with a massive debt burden without any hope of every getting out of debt. With the right kind of debt counseling, you might be able to take the proper steps towards reducing your debt and ultimately paying down the debt.
Low-income earners trying to get out of debt might also need help to increase their earning power. If you earn more money, you should ideally have a little extra money that you can apply towards paying your debt. You may want to update your skills so that you can take on other side gigs. You should also inform your friends and family members of your availability for side gigs or even better paying jobs to replace your current job.
Vía Max Keiser http://ift.tt/2nv0t0O