Last Updated on November 6, 2022 by Rebecca Lake
Trying to pay down debt when living paycheck to paycheck can feel like you’re shoveling sand with a fork.
You dig and dig but you don’t make any real progress. And trying to save money seems like an unreachable goal when you barely have enough cash to pay the bills.
I’ve been there and maybe you’re there right now. The good news is that it’s possible to get out of debt and break the paycheck to paycheck cycle for good.
There’s no magic formula for paying off debt on a tight budget. Instead, it involves a combination of things, including lowering the interest rates on your debts, reworking your budget to find more money to pay down debt and committing to living below your means.
If you’re sick of always feeling broke, these tips can help you figure out how to pay down debt while living paycheck to paycheck so you can start getting ahead financially.
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What Does Living Paycheck to Paycheck Mean?
Living paycheck to paycheck means that you spend all the money from your current paycheck before the next one arrives. An estimated 7 in 10 Americans live paycheck to paycheck, according to a February 2022 poll.
People who live paycheck to paycheck may lack emergency savings. That means if they miss a paycheck, they can’t pay their bills or feed their families. That’s especially problematic when something like a recession happens and employers start cutting jobs.
There are different reasons why someone may live paycheck to paycheck. Low income is one culprit; high expenses is another. But again, there is a way out of the paycheck to paycheck cycle and onto the path to debt freedom.
Pro tip: Living from paycheck to paycheck is different from paycheck budgeting. When you use the budget by paycheck method, you plan your budget around each pay period in the month to organize your bill payments.
How to Pay Down Debt When Living Paycheck to Paycheck
Getting out of debt when you have limited income, high expenses or both means you’ll need a solid plan for success. If you’ve never tried to pay down debt before, you might now know where to begin.
The debt-free blueprint I’m about to give you is the one I used to pay off close to $100,000 in consumer debt (and grow my savings at the same time!)
I can’t guarantee that these tips will improve your financial situation overnight. But they can help you get closer to living debt-free.
1. Prepare yourself mentally
Having a foolproof plan to pay down debt can only take you so far. If you’re not mentally committed to paying off debt (and breaking the paycheck to paycheck cycle), you may not make much progress.
So first, ask yourself how prepared you are to make whatever financial sacrifices may be necessary to get rid of your debt.
If you’re married or have a significant other that’s going on this debt free journey with you, ask them the same question. Getting on the same page can be crucial, since 54% of couples say that debt is a reason for divorce.
And if you’re having some doubts about your ability to stick with your plan, repeating some financial affirmations can help. Creating a money mantra or meditation can make it easier to stay motivated as you pay down debt.
2. Create a debt inventory
One of the biggest hurdles of paying down debt when you live paycheck to paycheck is not having a clue how much you owe. That’s where a debt inventory can help.
A debt inventory is a listing of your debts. To create a debt inventory, you’ll make a list of:
- Each debt account’s name and account number
- Balances owed to each debt
- Interest rate and APR for each debt
- Minimum monthly payment for each debt
- Actual amount you pay monthly for each one
After creating your debt inventory, you’ll have one big number showing the total amount owed. That number can be overwhelming.
But it’s important to know how big of a challenge you’re taking on to pay down debt on a paycheck to paycheck budget.
3. Review your budget
A budget is a plan for spending money each month. On one side, you have the money you earn; on the other is what you spend.
Ideally, you should have money left over in your budget each month. If you spend more than you earn, that could be a reason why you have debt if you’re using credit cards or loans to cover the gap.
There are different ways to make a budget. Some of the most popular budgeting methods include:
- Cash envelope budgeting for beginners
- Digital envelope budgeting
- 50/30/20 rule budgeting
- Dave Ramsey budgeting (using percentages)
The method isn’t as important as sticking to the budget you create.
Planning a budget can help you to do two things:
- Find areas where you’re overspending
- Determine how much you can realistically afford to pay toward debt
Both are crucial for paying down debt when you live paycheck to paycheck. If you need help with getting started, bookmark this budgeting guide for beginners to read next.
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4. Cut expenses to find extra money for debt repayment
Living paycheck to paycheck likely means you don’t have a lot of extra cash to spare in your budget. So the next thing you’ll need to do is find money to pay down debt.
The easiest place to start is with your current expenses.
Some budget categories may be non-negotiable. For example, there may not be much you can do to lower your rent payments or mortgage, short of refinancing your home loan.
But there are other expenses you have control over. There are two ways to create extra money to pay down debt in your budget:
- Cut what you can
- Reduce what you can’t
This is where it helps to know the difference between needs and wants.
A need is any expense that’s required for you to maintain a basic standard of living. A want is anything else.
So when cutting expenses, wants are the first thing to do. That includes things like shopping, dinner out, expensive hobbies and travel.
Now, if you’re living paycheck to paycheck you might not be spending much on those kinds of things anyway. So your next option is to look at what you can reduce.
Some of the things you have some wiggle room with here might include electric and utility bills, cell phone bills, gas and groceries. These are usually needs for most people but it’s possible to save money on them.
Here are some simple ways to cut your basic expenses:
- Switch from a contract cell phone plan to prepaid (this saved me $600+ a year)
- Use a free app like GetUpside to find the cheapest gas prices (and drive less if you can)
- Install a programmable thermostat to save on electric
- Plan meals using cheap (but healthy) foods
You can also use a personal finance tool like Trim to find more money to save.
The Trim Financial Manager can help you cut costs by avoiding high bank fees, canceling unused subscriptions, negotiating bills and lowering the APRs on your credit cards.
5. Choose a debt repayment strategy
There’s more than one way to pay down debt when living paycheck to paycheck which is a good thing. It means you can pick the plan that works for you.
To keep things simple, let’s compare two options: the debt snowball and the debt avalanche.
The debt snowball method, popularized by Dave Ramsey, advocates paying off debts from the smallest balance to highest. The debt avalanche has you paying down debt from the highest interest rate to the lowest.
Here’s a simple debt repayment chart so you can see how they stack up side by side.
So what’s better, the debt snowball method vs. avalanche? It really depends.
If you want to clear off a debt or two fast, then the snowball method can do that for you.
On the other hand, if you want to minimize the amount of interest you pay on your debt, then you’ll want to choose the avalanche method all the way.
I used the debt snowball to pay off my credit cards. I had several cards with different balances and the snowball method gave me the mental motivation to keep going.
But you should do whatever works for you. Just like budgeting, the method isn’t as important as coming up with a plan you can commit to and stick with.
6. Lower the interest rates on your debt
High interest rates can make paying down debt while living paycheck to paycheck much more difficult. And you might see very little progress if you’re only making the minimum payment due on some of your debts.
Reducing the interest rates on your debts means more of your payment goes to the principal. That can help you make a bigger dent in your debt.
There are different ways to reduce interest rates on debts, including:
- Calling the credit card company and asking for a lower rate
- Taking out a low interest rate personal loan to consolidate debts
- Transferring balances to a new credit card with a 0% APR
Credit card companies may be reluctant to cut you a deal on your rate but it’s still worth asking.
If that’s a no-go, you can shop around to compare personal loan rates and explore your balance transfer credit card options.
Upstart is a great option for low-rate personal loans and you can check your rate online. If you’re interested in finding 0% APR credit card offers, you can check your options for free at Credit Karma.
7. Use cashback apps to save
Signing up for cashback apps is one way to create extra money that you can use to pay down debt.
Unless you plan to live under a rock, you’ll have to spend some money every month. Food, clothes, gas–that adds up.
Cashback apps can pay you back a percentage of what you spend on those things. And that can help create some financial breathing room when living paycheck to paycheck.
If you’re wondering which cashback apps are worth your time, these are my personal favorites.
- Ibotta. The Ibotta app pays you cash when you shop at partner stores, including grocery stores and retailers. This app allows you to link your store loyalty cards for more savings and you can get up to $20 in cash bonuses just for signing up!
- Rakuten. Rakuten lets you can earn cashback when you shop in-store or online at hundreds of merchants. You can download the Chrome browser extension to get exclusive coupon codes to go along with your cashback to save even more. And Rakuten routinely offers bonuses of $30-$40 when you shop and refer friends!
- Dosh. The Dosh app is an easy way to earn cashback on dining, entertainment and even travel. You link a debit or credit card to the app, spend at partner stores and restaurants and get up to 10% back.
Every one of these apps is free to sign up for and use to earn cashback. And getting all three apps can make it easier to earn cashback on everything you buy each month.
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8. Pay down debt with found money
Found money can be another useful tool for paying down debt while living paycheck to paycheck.
Found money is any extra money that comes your way that you don’t budget for. Examples of found money include:
- Tax refunds
- Cash gifts you receive for birthdays or holidays
- Pay raises or bonuses
Found money is great for making an extra payment to debt for the month or adding something to savings.
The catch is making sure that when extra money lands in your lap, you have a plan for using it. Otherwise, you could just blow it all and that won’t help you pay down debt.
9. Make extra money to pay down debt
Starting a side hustle can make a huge difference in your ability to pay down debt and stop living paycheck to paycheck.
Even making an extra $1000 a month from side jobs could help you to shave years off your debt repayment plan.
There are lots of ways to make extra money on the side. Some side hustles you can do online; others you can do offline.
Here are some of the best ways to make money with side hustles to pay down debt.
- Pet-sitting (Try Rover to find pet-sitting gigs online!)
- Becoming a virtual assistant
- Delivering food for DoorDash
- Shopping for Instacart
- Getting paid to write
- Taking surveys online
- Starting a blog
- Online proofreading or transcription jobs
There are just some of the ways you can make extra money to pay off debt. For more side hustle inspiration, read through these posts:
- 27 Best Side Hustles for Women (Make Extra Money Now)
- 50+ Flexible Side Hustles for Moms Who Want to Make Extra Money
- 142 Profitable (and Legit) Side Hustle Ideas
- 15 Low-Stress Side Hustles for Introverts That Pay Well and Don’t Require Talking
- 25 Lucrative Side Hustles for Single Moms Who Need to Make Money Now
Final thoughts on how to pay down debt while living paycheck to paycheck
Getting out of debt on a tight budget can feel impossible but it doesn’t have to be. These tips can help you to create a game plan for paying off debt for good so that you have more money to save.
And if you’re truly struggling with paying down debt, consider asking for help. You can visit the National Foundation for Credit Counseling to find a certified nonprofit credit counselor in your area.
Need more tips for managing your money? Read these posts next:
- 42 Cheapest Foods to Buy on a Tight Budget (Eat Well When You’re Broke!)
- How to Do a No Spend Challenge (3 Pro Tips to Help You Save Money)
- How to Save 10000 in a Year [Simple Tips That Really Work!]
- CIT Bank Savings Connect Review: Is It the Best High-Yield Savings Account?
- Tally App Review: Is It a Legit Way to Pay Off Credit Card Debt?