Paying Off Loans Living Paycheck to Paycheck

Written by Bonnie Gringer

These days, it is hard for many people not to live paycheck to paycheck. The rising cost of living and below-average wage growth in many industries mean that for many of us, most of our paycheck each pay period is spent as soon as we receive it, and there is nothing left over to put into savings. Of course, being without savings and having a large amount of debt is risky in any situation, but it is particularly risky when missing just one paycheck will cause you to fall into financial ruin. Do not lose hope, however, for even if you are currently living paycheck to paycheck, you can take steps to repay your loans and other debts while building up a savings account. It just takes a little bit of planning for your debt to start to disappear.

List Expenses and Create a Budget

The most important thing you can do to repay your loans and other debts if you are living paycheck to paycheck is to understand exactly where all of your money is going. Without having a sense of what you are spending your funds on, you cannot make a plan for reducing expenses and paying down debt. Financial planning experts recommend that you track your expenses and create a budget that will rein in your spending. Men and women who live on a budget learn how to avoid wasting money, and they are better able to control their funds. When you list your expenses, make sure that you note which expenses are mandatory (like the rent or mortgage payment, power bill, gasoline, and groceries) and which are discretionary (such as entertainment, home decor, and the like). It is easiest to cut discretionary spending in order to find additional money to repay loans and other debts. Today, there are several budgeting apps, such as Mint and EveryDollar, that can make creating a budget simpler for you.

Trim Everyday Spending

After you know where your money is going, look for ways to trim your spending. The easiest and quickest way to do this is to trim your discretionary expenses. Make coffee at home instead of buying that $4 latte every morning. Rent movies or watch them on a streaming service instead of going to the theater. You will be surprised at how much you can save by making little, painless cuts in your spending. After you have reduced discretionary spending, look at cutting your mandatory expenses. Shop sales and use coupons for your groceries. Set your air conditioning a bit warmer. These things and others can add up to big savings each month.

Find a Support Person

Men and women who have a supporter to encourage them find it easier to stay motivated to repay loans and other debts. Tell your friends about your goals and ask them to hold you accountable. Form a community with others who are living paycheck to paycheck while trying to pay down debt, and encourage one another. Many financial literacy programs and courses have support built into them, so consider joining one of these groups in order to stay on a consistent track of debt repayment.

Set Reasonable Goals

If you set unrealistic debt repayment goals, you will not meet them, and you will grow discouraged and possibly quit your financial program. It is unreasonable to expect to repay $60,000 worth of debt in one year if you are earning $60,000, but you might be able to pay off $10,000. Your goal is to get out of debt so that you are not living paycheck to paycheck anymore, so do not worry if it may take you longer than you’d hoped to pay off your debts. As long as you are making progress toward paying off all of your loans and other debts, you are doing well.

Pay Bills and Debts First

Getting out of debt while living paycheck to paycheck means putting a priority on paying off your debts first. After paying all of your mandatory bills each month, move immediately to your debt. There are two popular and effective plans that people follow to pay off loans and other debts. With the “avalanche method,” you pay the minimum on all of your debts except for the one with the highest interest rate. On that debt, pay the minimum plus any extra you can come up with. Continue until all of your debts are paid. With the “snowball method,” you pay the minimum on all of your debts as well. However, you then list your debts from smallest to largest and put any extra money you have toward the smallest debt on your list. Continue until all of your debts are paid off.