How to pay off debt fast with low income

profile Erin Bruehl  |  July 9, 2021

Plenty of articles explain how to get out of debt on a low income. Most of them include advice like this: "Spend less, and make bigger debt payments."

But what happens when your income is stretched so thin that you simply can't apply more money toward your debt?

It's harder to tackle a mountain of debt when you don't have huge sums of money at your disposal. But it's definitely not impossible. We'll walk through several steps anyone can take to pay off debt quickly and prepare for a secure future.

Transfer Payday Loan Debt

Is your neighborhood dotted with shops promising fast cash with no money down? A payday loan can seem like a godsend when times are tight. But climbing out of debt with a loan like this is incredibly difficult.

Payday loans are expensive due to:

  • High interest rates. Prepare to pay between $10 and $30 for every $100 you borrow, with $15 per $100 being the most common rate. With fees like this, you're paying an annual percentage rate of about 400% for a 14-day loan, which is substantially higher than the rates attached to most loans.
  • Rollover charges. If you don't pay back what you owe on time, the company might add $45 more to your balance.
  • Late fees. If your payments come late, you could have even more fines tacked onto your account.

The majority of people who take out payday loans do so to cover everyday expenses, such as rent and utilities. Those bills come due every month, and with a loan balance in the mix, covering them grows more and more difficult over time. Current offers free overdraft, up to $100 for our premium members.  And no one pays any overdraft fees.

Most consumers, including those with low income levels, have at least one credit card. If you do, check both your balance and your interest rate. If your card can cover your payday loan, use it to pay off what you owe.

If you can't transfer the debt, put your payday loan at the top of your repayment list. This account does the most damage, and it's wise to tackle it first.

Create a Realistic Budget

About a quarter of Americans believe everyone should create a budget. But just 67% of families do so. When it comes to paying off debt quickly, a budget is your most important asset. If you don't have one now, it's time to start planning.

An ideal budget contains these categories, and the following percentages detail how much you should spend in each group:

  • Housing: 35%
  • Transportation: 15% to 20%
  • Food: 10% to 20%
  • Play: 5% to 10%
  • Utilities: 5%
  • Clothing 3% to 5%
  • Medical: 3%
  • Debt repayment: 5% to 15%

Use this data to guide your planning, but know that your circumstances may differ. If you need insulin, for example, you may spend much more than 3% of your income on medical expenses each month.

But as you look over these guidelines, you may notice some parts of your life that need a shift. For example, if you live alone in a two-bedroom apartment, you may spend much more than 35% of your budget on housing. Perhaps moving to a smaller home could help you save money, and those funds could be applied to your debt.

If you're not certain how much you spend each month, our tools can help. Current will send you a notification each time you spend money. Insights within our banking app will help you track when and where you spend your money and you can create budgets directly in our app.

Current gets you your paycheck up to 2 days faster. This means you can pay your bills on time and avoid late fees, which can often snowball into more debt. You’ll also earn cash back on purchases and receive instant gas hold refunds.

Write down your spending goals for each month, and use figures you can live with. For example, don't cut your play funds to $0. You'll be tempted to splurge from time to time, and when you do, you're likely to use a charge account unless you've planned ahead.

Set up a budget through our app, and we'll notify you when you're about to blow past your limits with your next purchase.

Talk With Your Lenders

A firm budget gives you a deep understanding of how much money you have each month. Run the figures a time or two, and you may discover that you don't have enough left behind to pay what you owe. It's time to hold a conversation.

Avoiding your debt can make the problem worse, not better. For example, if you skip your car payments, the dealer can take your car away. But your debt doesn't disappear. Now you have a car payment, no car, and no reliable way to get to work.

Contact your car loan and mortgage companies. Tell them the details of your budget, and explain the monthly amount that will fit into your budget. They may be willing to work with you if they know you have a reasonable debt reduction plan in the works.

Talk with your credit card companies too. Your card interest rate is typically based on the strength of your credit score when you opened the card. If you're making more money now and you have a good credit history, the company may give you a better deal.

Craft Your Debt Reduction Plan

You’ve eliminated the high-interest debts you can, and you've negotiated the best fees your creditors will give you. Now, it's time to determine where every monthly payment will go.

Experts recommend prioritizing the loan with the highest interest rate. Remember that payday loan? If you couldn't transfer the balance, make it the first debt bill you pay every month.

If you can, pay more than the minimum amount due on each credit card bill. Less than 40% of people with credit cards take this step. But when you do, the balance will fade very quickly.

Create a Rainy Day Fund

Debt is your primary focus. But creating an emergency cash stash could help you avoid a slide when the next crisis hits.

All sorts of financial emergencies could happen to you, such as these:

  • Unplanned medical bills
  • Car repairs
  • Unexpected moving expenses
  • Job losses

Without an emergency fund, you'll dip into debt to handle the unexpected. You could lose all the ground you've made up in paying back what you owe.

Experts recommend keeping three to six months of salary in an emergency fund, but this may not be realistic for all families. Look for ways to save small, and make a commitment to keep that money in reserve for the unexpected.

Use automated tools, like our Savings Pods, to create emergency fund accounts. When you enable round-ups, every time you use your debit card, we'll round up the amount and slide it into your savings pod. Add to it from checking with the click of a button, but know you're also saving with each purchase you make.

Work With an Expert

If all of these tips just don't seem right to you, and you can't see your way out of the debts you owe, get help from a professional credit counselor.

Agencies that specialize in credit counseling offer a variety of services that could be valuable as you pay down your debt, including:

  • Classes. Learn how to build up your savings and manage your debt.
  • Counseling. Work one-on-one with a professional who can assess your plans and offer helpful advice.
  • Advocacy. A counselor can get in touch with your creditors and develop a payment schedule that works for you.

Reputable credit counseling agencies will send you free information about the services offered and the expected fees. Companies that aren't straightforward about what they do may not be legitimate, and it's wise to keep looking.

Don’t Give Up

It's always easier to spend money than to pay off debt. But you've tackled plenty of difficult tasks during your life. You can handle this one too.

At Current, we're here to help. We help you get paid up to 2 days faster, so you can better meet your debt deadlines. And we have no hidden fees or minimum balance requirement, so you have more money to apply to your debt. We offer free overdraft, and you can earn cash back with our points system.

We'd love to tell you more about what we offer. Download our app and sign up in just 2 minutes!

Current is a financial technology company, not a bank. Banking services provided by Choice Financial Group, Member FDIC.


What Are the Costs and Fees for a Payday Loan? (June 2017). Consumer Financial Protection Bureau.

Payday Loan Facts and the CFPB's Impact. (January 2016). The Pew Charitable Trusts.

Credit Card Ownership Status. (January 2020).

Fewer Americans Are Budgeting in 2019, Although They Think Everyone Else Should. (April 2019). PR Newswire.

How Much Money You Should Spend on Living Expenses. Credit Counselling Society.

Coping with Debt. Federal Trade Commission.

How to Pay Down Credit Cards on a Tight Budget. (December 2019). Experian.

U.S. Survey Data at a Glance. FINRA.

40 Percent of Americans Spend Up to Half of Their Income Servicing Debt. (April 2017). Market Watch.

7 Life Surprises That Require an Emergency Fund. (March 2014). U.S. News and World Report.

Should I Pay Down Debt Before Saving Money? Equifax.

Can Credit Counseling Hurt Your Credit? (February 2020). Experian.

Choosing a Credit Counselor. Federal Trade Commission.

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