How to Pay Off Debt Without Increasing Your Income

Tue, Jan 21, 2014

Financial Advice

Here’s the thing about debt: you got into it because your income wasn’t enough to support your needs. This is the thing that makes debt so frustratingly hard to pay off; if you have to charge $1,200 to the credit card to put a new transmission in the car, for example, it’s not like you’re going to have an extra $1,200 sitting around next month to pay that debt off. At most, you’re going to have an extra $200, which is why people get stuck paying off their credit card debt for decades and often rack up new debt while trying to pay the old debt off.

There are a couple of tried-and-true methods of hunkering down and tackling the outstanding debt. One of them is the famous Snowball Method, popularized by financial guru Dave Ramsey. With this method, you put as much money as you can towards one credit card while paying only the minimum payment on the other cards. Once the first credit card is paid off, repeat until your debt is gone.

The Snowball Method is fairly effective as long as you have a lot of disposable income available to put towards your credit cards. However, if you have the average American’s 3.5 credit cards, you’re often looking at minimum payments of $800-1,000 alone. That’s already a huge chunk out of your paycheck, and it’s hard to save more for the Snowball Method.

In that case, the other tried-and-true method is what Mr. Money Mustache calls the Debt Emergency. When you practice Debt Emergency, you do zero discretionary spending. No eating out, no concert tickets, no new clothes, no Netflix. Every penny you have goes towards paying off your debt.

This method can get your debt paid off, but it has some serious social consequences. A lot of people get into debt in college, for example. Practicing Debt Emergency during their 20s and 30s means they lose out on a lot of career-building resources. Believe it or not, staying home every night doesn’t get you that good job, and it doesn’t help you build relationships or friendships. Going to happy hour and investing in a few nice suits, on the other hand, does.

And then there’s a third option, which a lot of people don’t consider: seeking professional help. Taking advice from people like Dave Ramsey or Mr. Money Mustache is a good start, but it doesn’t fit everyone’s individual needs. If you’re truly looking to get out of debt, you often need a personal financial counselor to help you figure out a repayment plan that makes sense with your current life and income.

The team at Cavalry Portfolio Services, for example, works with you to create an affordable debt repayment plan, and has helped many people knock out what would otherwise have been long term debts. Check out Cavalry Portfolio Services on Facebook and see if their solutions are right for you.

There should also be a local branch of the Consumer Credit Counseling Service in your town or city that’s designed to help people get out of debt. CCCS is an official non-profit that works towards helping individuals resolve their debts.

Professional help does often come with an additional financial cost, but is sometimes the only way to tackle your debt and pay it down permanently, especially if you don’t see your income increasing any time soon. Once your debt is paid off, of course, it is now your job to make sure you never go into debt again. Use the money you’re no longer paying towards your credit cards and start building an Emergency Fund, so you’ll always have cash available when you need it. That way, even when your financial needs outstretch your income, you’ll never have to go back to putting your life on your credit cards.

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