How to Start Paying Off Debt When You Don’t Have Extra Income

Start With the Money You Already Have

When people talk about getting out of debt, one of the first suggestions is often to make more money. A raise, overtime, or a second job can certainly help, but those options aren't available to everyone.

My approach starts somewhere else: with the income you're already earning.

Before deciding how to pay off debt, you need a clear picture of what you owe, what you're required to pay, what it costs you to live, and whether there's anything left that can be directed toward one debt at a time.

Put Every Debt in One Place

Make a list of every debt you're currently paying. A spreadsheet works well, but a notebook or sheet of paper is fine too. Use whatever you're actually going to maintain.

For each debt, record:

• Creditor name
• Payment due date
• Current balance
• Interest rate
• Minimum payment
• The amount you're actually paying

Seeing all of the numbers together can be uncomfortable, but writing them down doesn't create the debt. It gives you the information you need to start doing something about it.

Know What Your Month Really Looks Like

Add up your monthly take-home income—the money that actually reaches you after taxes and payroll deductions.

Then list your necessary living expenses, such as housing, utilities, groceries, gasoline, insurance, medical expenses, and transportation.

Finally, total the minimum payments on all of your debts.

Find Your Extra Debt Payment

Subtract your necessary living expenses from your take-home income. Then subtract your total minimum debt payments.

The key is not to scatter that extra money randomly across several debts. Choose a repayment strategy and concentrate the extra amount on one target debt while continuing to make at least the minimum payment on the others.

Choose Snowball or Avalanche

Two common repayment strategies use the same basic idea but choose the target debt differently.

Debt snowball: Attack the debt with the smallest balance first. Paying off an account relatively quickly can provide motivation and visible progress.

Debt avalanche: Attack the debt with the highest interest rate first. This concentrates your extra money on the debt costing you the most in interest.

I've personally used the debt avalanche method. But the best method isn't necessarily the one that looks perfect on paper. It's the one you're most likely to stick with.

Keep the Total Payment Going

When your first target debt is paid off, don't treat its old payment as new spending money. Add that entire payment to the next debt you're attacking.

As each debt disappears, more money becomes available to attack the next one—even though the total amount you've budgeted for debt hasn't increased.

That's what makes both the snowball and avalanche strategies build momentum.

What If There Really Isn't Anything Left?

There is an important difference between having only a small amount available for an extra debt payment and not having enough income to cover necessary living expenses and minimum payments at all.

If you can't cover the minimums, a snowball or avalanche strategy by itself isn't going to solve that problem. You may need to look more closely at expenses, contact your creditors about available options, or speak with a reputable nonprofit credit counselor.

Don't simply start skipping payments without understanding the consequences.

Progress Matters More Than Perfection

Paying off debt takes time. Unexpected expenses happen, budgets change, and there may be months when you can't make the extra payment you planned.

A setback doesn't mean the plan has failed. Adjust the numbers and keep going.

You didn't get into debt overnight, and you're probably not going to get out of it overnight either. What matters is that you start.

Want the Complete Debt-Reduction Plan?

Debt Reduction: How to Get Out of Debt Without Increasing Your Income — Second Edition goes deeper into assessing your debt, snowball and avalanche repayment strategies, budgeting, impulse spending, healthy financial habits, credit counseling, and worksheets for building your own plan.