How to Pay Off Debt When You're on a Fixed Income
by Jamie Matthews | Published on Sept. 5, 2021
Don't lose hope -- one of these tactics could help you become debt free.
Paying off debt can be a real burden for anyone, but it can be especially challenging for those living on a fixed income from month to month. Fixed-income Americans include groups like retirees who no longer receive a regular paycheck and instead rely on a pension or Social Security income.
While paying off debt on a fixed income may be more difficult, it is possible. Give these three tips a try to help say goodbye to debt and hello to more financial freedom.
1. Redo your budget
The easiest of the three options is to simply redo your budget. Revisit where you're allocating and spending your fixed income each month and see if there are changes you can make. Are you paying $120 a month for a cable plan you barely use, or $100 for unlimited cellular data even though you're always on wifi? Or perhaps you're paying $100 for the highest-speed internet when you only pop open your laptop to read the news? These scenarios leave lots of room for reworking your budget.
You could, for example, cancel that costly cable plan and opt for a Netflix subscription ($8.99 to $17.99 per month, depending on the plan you choose) until you make a dent in your debt. That's over $100 a month you can reallocate to debt payments. Take this scenario even further and say you also opt for one of the cheaper cellphone plans floating around. One popular carrier is offering $35 a month per line for two lines of unlimited data for those 55 and older. There's another $65 saved. And finally, you can probably cut your internet price in half -- or at least get a sizable deduction -- by downgrading your speed. All-in, you're looking at about $200 a month in savings just by making these three changes.
The scenarios above don't even touch on other budget categories you could look at, like lowering your grocery bill, dining out less, or cutting back on trips to the salon. Every dollar you can save in your budget can be put toward freeing yourself of debt. And the sooner you are debt free, the sooner you can welcome back some of those luxuries you cut.
2. Consolidate your debt
Debt consolidation is a great option for a couple of main reasons:
- It lumps all your debt together so that you make just one payment instead of several.
- You generally pay much less in interest on consolidated debt.
Eliminating the need to keep track of and pay multiple debt payments each month takes a lot of the stress out of the equation. Instead of paying four credit card companies and a personal loan or two, you can instead make one lump-sum payment covering all of these debts at once.
There are multiple ways to consolidate your debt, including:
One of these options might work better for you than the others. Personal loans are a popular option because they usually charge much lower interest than credit cards. There are personal loans for people of all credit scores, from personal loans for bad credit scores to personal loans for excellent credit scores. Also, unless you take out a secured personal loan, unsecured personal loans don't require you to put anything on the line to get your loan. That makes them a fairly safe option for consolidating your debt.
If you have an amount of debt you think you can easily pay off within a year or so, then a balance transfer credit card with a 0% introductory rate might be the perfect solution. As long as your credit limit is high enough to cover all your debts and you pay the debt off within the intro period (usually 12 to 18 months), you won't pay any interest using this method.
If your debt amount is higher, but you own a home with a decent amount of equity (the amount of your home you own outright), you could take out a loan against that equity. You put your home on the line with a home equity loan, however, so you must be sure you can make the payments on time. Home equity loans also typically come with much lower interest rates than what you pay with credit cards, so they might be a good option for you.
3. Get a side hustle
Side hustles aren't only for the young and unencumbered. There is side hustle work available for all walks of life. Do you like to take a daily neighborhood stroll? Add a couple furry pals to that walk and get paid to do so. Do you like giving your opinion on products and services? Sign up for a survey or review site and get paid for submitting your thoughts. Have a couple free hours in the evenings and love to knit? Whip up some mittens or blankets and sell them for cash. Any dollar you can bring in that adds to your fixed income can contribute significantly to paying down your debt.
Becoming debt free is no easy task, and it can be made even more difficult with limitations like a fixed income. But as much as it may feel like it, your situation isn't hopeless. There are still ways to dig out. Put one or more of these tactics into action today -- your personal finances will thank you.
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