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It is always difficult to get out of debt. Even when you have plenty of money coming in, retiring debt requires a comprehensive and definite strategy. When you need to get rid of debt and have a low income, it is an even greater challenge.

What is Considered "Low Income"?

The first thing everyone should know is the definition of "low income," but they should also realize that being in some level of debt is normal and is not directly related to income. Many people who make a lot of income also carry a lot of debt.

The actual definition of "low income" is dependent in part on your dependents. The larger your household is, the higher the threshold for "low income." According to the Federal Government, "low income" is defined as those who make less than twice the federal poverty level. Using the federal poverty line for 2018, which is $25,200 for a four-person household, that means you are "low income" if your family of four is bringing in less than $50,400.

Keep in Mind! Being "low income" is not the same as "living paycheck to paycheck".

There is no official definition for that, but it essentially means you're spending every dollar you make every month. In other words, if you run out of money before you run out of the month, you're just scraping by. And when you're just scraping by, you don't see a way to pay down your debt and get out of the constant debt cycle. Well, there are ways.

The Bad and The Good News

The bad news is, it's harder to reduce debt when you're low-income. However, the good news is, getting rid of debt is possible, even if you are low-income and you don't own a home or a car. There are specific strategies one can take to start eliminating debt, even when it looks like you're not making enough money to do so.

This article will explain strategies anyone can implement to begin taking on the twin feats of eliminating debt and improving your credit score.

How to Pay Off Debt When You're Low Income

There are concrete and effective ways to help you pay off debt, even when you don't see an extra dollar every month. There is a path to debt freedom, yet when you have just a small amount of money to work with. When you have a small income, and you're trying to pay down debt, things can get very tight. It also means it might take a longer time to pay off your debt, which means you'll need patience.

The first things you must do to be successful at retiring your debt and improving your credit are critical. First, you have to believe you can do it. You absolutely must adopt the mindset that you can achieve your goal of being debt-free. You also must know exactly where your money is going.

Step 1: Keep Track of Your Money

The first thing low-income people should do is to discover where every single dollar goes. Before you start paying down your debt, you have to know where the money will come from. You think you know now, but if you're like most people, you really don't keep close track of your money. You buy a cup of coffee and think, "It's only $2," and you buy hot dogs for $2 for lunch because it's cheaper than eating at a restaurant. Money flows in and out of people's lives all the time, without them thinking about it, and they find themselves holding on tight until the next paycheck.

For the first month of this quest, you should keep track of every penny you spend; every cup of coffee, every pack of gum, everything you eat or drink. Put everything down in a small notebook, or on a note-taking app on your smartphone. It doesn't matter how you do it, but you record every purchase and how much you spend on a daily, weekly or monthly basis. This is a powerful exercise and prepares you for Step 2.

Step 2: Learn to Budget

Once you have written everything down for a month, it's time to create a written budget. Again, whether you write it down on paper or you use a spreadsheet or a budget app on your phone doesn't matter. What matters is that your budget is very detailed because it has to be to work. Using your one-month expense tracking, determine which items you have to spend and cut out everything you do not have to spend. Create a budget that places every dollar you earn into a specific place for a particular purpose.

Quite often, the simple act of writing up a budget will free up a couple of hundred dollars. Carrying a bag lunch to work every day instead of spending $2 per hot dog alone could save $20-30 per month. Taking a thermos of coffee to work instead of stopping at the coffee shop every morning could save another $30-40 per month. When you write up a budget and stick to it, there is no telling how much money you can save and put toward paying down your debts every month.

Step 3: Create a Debt Reduction Plan

Once you have a good idea where your money is going every month, only then can you devise a strategy for paying down your debt. Once everything is written down, and you're staring at it, you can envision a plan and write that down, too. Don't just fly by the seat of your pants. Write down your plan and stick to it.

Keep in Mind! Your housing costs should not take up more than 25% of your net income. If you don't have a lot of extra money, it might just take longer to pay down your debt. It doesn't matter, though. Even if you can only come up with $50 per month, it's still to your benefit to put that toward reducing your debt. If you don't use that money to pay down your debts, then your debts will continue to rise, which is no good for anyone. Work with creditors and see what sorts of payment plans they have for paying down debt and work to pay down unsecured debts, like high-interest credit cards, first. If you hunker down and do your best, you'll one day find yourself debt-free, and your low income will stretch much farther.

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