Today, consumer spending and household debt have reached levels never before seen. Even adjusted for inflation, today these figures are startling. Residents of developed nations around the world are spending more and more to support a lifestyle that, frankly, they can’t truly afford. As a result, this spending has become financed with debt in the form of credit cards, student loans, car loans, and even personal loans and home mortgages.

For many, the debt has become daunting. The bind in which they find themselves now, having realized that they need to adjust their lifestyle, they desperately want to trim or eliminate personal debts. They no longer want to shoulder these burdens. Many are undertaking this noble goal while already living on low incomes, making the challenge that much greater.

If you find yourself in this category, there are a number of steps that you can take to help reduce your debts more effectively, even while living on a low income. Below are a few suggestions.

1. Track your finances in detail. The first step in reducing debt is to first ensure you are well-aware of the details of your own situation. You may decide to use bookkeeping software like Quicken or QuickBooks however a simple spreadsheet or notebook will suffice. Keep track of all income and expenses, broken down into categories with as much detail as possible. Also be sure to list all debts that you have, and to make note of any monthly payments that you’re making.
   
2. Cut expenses wherever you can. Once you have compiled detail records of your finances, look for areas where you can cut back. This may mean forgoing meals or nights out – as entertainment can comprise a surprisingly large portion of monthly expenses. Depending on your situation, perhaps you can look into cheaper housing options. If you own a car but make payments, might you be able to sell the car and instead utilize public transportation until you have paid down your debts?
   

3. Use the savings to start paying down debt. It’s critical, in this step, that you pay down debts in the proper order – that being the highest-interest debts first. Credit card debts, unsecured lines of credit, and other personal loans should be addressed first. Later, you can move on to student loans, car loans, secured lines of credit or home mortgages. You’ll find those lower-interest items much easier to pay down once the higher-interest debts have been eliminated, as their relative carrying costs are much lower. It’s also critical during this step to make sure you don’t fall behind with one debt while aggressively paying down another. All minimum monthly payments need to be made before you start making extra payments toward one or more liabilities.
   

4. Immediately direct any windfall towards debt reduction. If you happen to receive an inheritance, a bonus at work, or other cash gifts including for holidays or birthdays, it can be tempting to spend this unexpected cash or otherwise treat yourself. If your goal is to reduce or eliminate debt, though, then that’s exactly how these funds should be used. These unanticipated funds probably won’t have been built into your spending budget – they certainly shouldn’t have been – so you shouldn’t be sacrificing anything to use those funds for paying down debt. These kinds of windfalls, if used properly, can help you to become debt-free much faster.
   

5. Add new revenue streams, even if they’re small. For some, this may mean getting a second job. For others, whose skills are always in demand – it can mean freelance or consulting work. Even babysitting, mowing lawns, Uber or other odd jobs can help you earn some extra cash to pay down debts.

6. Stop borrowing immediately. A wise man once said that, if you find yourself in a hole, the first thing to do is quit digging. Nowhere is this truer than in the area of debt reduction. It is well-nigh impossible to get out of debt if you keep adding to the total. So, whatever you do, once you’ve decided that you want to reduce your debts, first make sure that you are through building them up. Make whatever cuts are necessary to your spending, or sell whatever you must in order to insure you stop accumulating any new debt.

In personal finance, few objectives are more difficult than reducing debt. This is only made more complicated when it is attempted on a low income. Still, it is a noble goal which, for many, is the best way to set right their personal balance sheets and gain all-important peace of mind. If you find yourself in such a predicament, make sure to follow the tips above as first steps toward putting yourself on more solid financial footing.

Guest Post Author: Steven McMeechan

Steven McMeechan is a strategic marketing and communications specialist with over twenty years’ experience in senior marketing management roles across a range of industries including Information Technology and Financial Services. He works for Capstone Financial Planning and lives in Melbourne Australia.