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In this post, our focus is not on general advice about how to get out of debt, but on how to pay off debt fast. From the big picture things (like budgeting) to the microscopic ‘look-after-the-pennies’ approaches, we’re looking at the methods available to help you take a big chunk out of your debt quickly, even if you’re on a low income.
How to pay off debt fast with a low income
Get real about your debt
Whenever we talk about how to pay off debt, this is always our first piece of advice. Why? Because without doing this step, you can’t expect to get a good grip on your debt.
The cause of debt is very rarely as simple as ‘I spend too much on coffees’ or ‘I eat too many avocados’, it’s more often a case of lots of little things adding up — and the only way you’re going to spot these little things is by sitting down and have a good, honest look at your finances.
Maybe you’ll see that you could cut back on nights out or look for cheaper phone deals to find a bit of extra cash. But you might also notice that your debts coming out on different days means that you’re always playing catch up and it might be easier to roll all of your debts into one single payment.
The point is, you can’t know how to pay off debt without seeing how you got into debt in the first place.
Or, to paraphrase a popular idiom, ‘if you do not learn from history, you are doomed to repeat it.’
Here’s our top tip:
Take a pen and paper and write down every single one of your debts, from loans to credit cards, overdrafts to mortgages. If you’ve got a government student loan, it’s your decision whether to include it. Write down the interest and the amount you pay back every month too.
This will give you a list of everything you need to clear — and a good idea of what to tackle first.
Download a money management app
It’s 2018, which means the days of mental maths and pen-and-paper budgets are out of the window and the days of done-for-you budgeting and saving apps are here.
These apps don’t just break down where and when you’re spending money and give you an overview of your money habits, they can also automate small (or large) amounts of savings and help you stick to the budget you have in mind. And last year, we dived right into the world of personal finance apps to see which ones were the best, why not check out the results?
And, seeing as they’re all free, why not give a few a go?
Cut back, downsize or sell
If you’re wondering how to pay off debt, there are three sure-fire ways to take a few chunks out of what you owe: spend less money on things, spend less money on living expenses or sell your stuff.
Now, we know that those might not be right for everyone, but look at what a difference it can make: If you can save £50 a month on coffees, nights out or trips to the shop and pay it off of your debt, you’ll pay an extra £600 of your debt every year.
If you move to a smaller place for a year or two until you’ve paid off your debt, you could save a couple of hundred pounds a month on rent. If you did that, you’d be able to pay an extra couple of thousand off your debt every year. This means that you’ll be out of debt quicker, and you’ll pay less interest. Win, win.
If you don’t want to move and can’t think of places to cut back, you can look at ways to bring some extra money in. Perhaps you’ve got a guitar that you bought and never play anymore, an old games console or some old workout equipment that collects dust — these things are perfect for earning a little bit of extra money to pay off your debt. Stick them on Gumtree and eBay and turn old items into handy cash.
LoveMoney.com recently put together a list of surprising things in your home that are worth lots more money than you think. It’s in dollars, but it’s still well worth checking out.
Bear with us — because this is going to sound a bit odd — but embracing frugality isn’t just a great way to save money and learn how to pay off your debts, it can also be (whisper it) fun. Don’t believe us? Try and do a weekly food shop for half the amount you usually spend and treat it like you’ll win £25 if you succeed.
We bet you’ll be planning meals out like crazy, working out inventive ways to not miss out on the things you love and shopping around to find the cheapest deals. Plus, if you can save £25 on every weekly shop, you’ll save an extra £1,300 a year. Result, eh?
If you search around on the internet, you’ll find tonnes of frugal communities that do everything they can to pinch pennies and live life free of debt. We particularly like this story on r/frugal, a section of Reddit dedicated to the frugal life, of a user who saved just over $2000 in 4 months (after starting with $12 in their account) by making a budget plan compiled from tips found around r/frugal.
In the post, he lists 16 tips for how to pay off debt in a short period of time, but we’ve included our favourite here:
“When you see your savings grow, remember that feeling. That feeling of accomplishment, growth, and satisfaction is not a feeling you have to feel only once. You can feel it as often as you allow. You can continue to accomplish more and more, save more and more, and feel better and better. This is your motivation. This is proof that determination and hard work really can help you achieve what you want to achieve.”
Bring in extra cash
If you don’t wanna cut back or sell your stuff (and we get it, it’s not for everyone) then you’re in luck — thanks to the internet, it’s never been easier to bring in a second income stream. This is a how to pay off debt top tip, by the way.
Gone are the days of getting an evening job as the only way to bring in a second income, now there’s no limit to the ways that you can bring in a second source of cash, from writing to selling crafts or helping people do things around their home.
And, because we like to wade neck-deep in all things personal finance, we’ve written a few articles on that too, from ways to make money online to creative ways to make money on the side to the side hustles that are (and aren’t) worth your time.
Consider debt consolidation
If your debt has made your life a little chaotic, you’ve probably missed a payment or two here and there. Who hasn’t, eh? The problem is, missing payments is really bad for your credit score. You’ll end up paying more than you realise in late fees.
In situations like this, it’s sometimes best to do something completely counterintuitive: take out more debt. But because a debt consolidation loan can help you pay off all of your debts and roll them into one payment that happens on the same date every month, it can make the process of paying back your debt much simpler.
Find out more about debt consolidation loans.
Don’t forget to treat yourself
We make no secret of it: we love The Financial Diet here at Bamboo. It’s a book, blog and YouTube channel that focuses on everything you can do to make your way to a debt-free life – from being frugal to investing in the stock market.
And while it’s a great resource for everything you need to live a debt-free life, one of the things we love most about the site is that it doesn’t encourage you to be miserable while you cut things out.
In fact, one of their top pieces of advice on how to pay off debt is:
Make indulgences and splurges a part of your financial life, but treat them as the rare, exciting thing they are. Too many treats aren’t treats anymore, they’re a lifestyle.
The great thing about moderating your treats is that they become a reward for good financial habits and help you tuck away money every single day. And they give you a psychological boost, too. Anybody who has ever tried to save every penny for more than a few months knows how depressing that can get!
So, in effect, you get to save lots and treat yourself. Win, win indeed.
Have you got any top tips for how to pay off debt. Maybe it’s a crazy side hustle or some thrifty kitchen tricks? If so, we’d love to hear them. Let us know on social media or in the comments below!
- Author The Bamboo Team
- Posted 11 January 2019