4 things you must do when you're struggling to pay down debt

It’s all too easy to borrow money, but paying it back can be painful. You’ve already got enough to worry about, from dealing with the high cost of day-to-day living to trying to navigate the treacherous waters of your job and career.

So what happens you’ve got enough debt every month to make you worry, but your salary isn’t enough to make you feel like you can handle it? Those home loan, student loan and car loan repayments can really add up, and if you add high interest credit card debt to the list, you’ve got a recipe for disaster.

It’s not going to be easy, but there are a few things you can do to pay down your debt even on a low salary.

Reduce your cost of living

If you’re feeling uncomfortable with your debt repayments, it means your living expenses are too high, or your salary is too low. And because you can cut your cost of living more quickly and more easily than you can find a new job, that is the first thing you should be doing.

Simply telling yourself to spend less isn’t enough. You need to take concrete steps to cut your monthly costs, such as by cancelling unwanted subscriptions and memberships, downgrading your mobile data plan, or even selling your car if you’re desperate enough.

Next, you want to create a budget for all the things you spend on, such as shopping, restaurant meals, groceries and transportation. Track your spending over the past few months to know how much you usually spend, and then figure out how much you can actually afford to spend. Be prepared to make lifestyle adjustments, such as learning to cook instead of eating out daily.

Use a budgeting app to help yourself keep track of how much you’re spending throughout the mouth, so you can tell when you’re about to bust your budget.

Look for a side income

If your job is underpaying you, you should most definitely look for a new one so you can get paid what you’re worth.

But in the meantime, it’s a good idea to look for a side income, especially if you have high interest debt (eg. credit card debt or personal loans) that needs to be paid off real quick.

If you’ve got high interest debt that can be paid off in a matter of months if you apply yourself, some quick ways to earn a side income are to get a side job on weekends, such as working at events, getting a few tuition kids or selling all your unwanted belongings on Carousell.

In a less urgent situation, you might be able to slowly raise your income by doing freelance work or starting a small side business.

Don’t neglect your emergency fund

No matter how eager you are to pay off your debt, don’t neglect the importance of maintaining an emergency fund. If you’re a salaried employee with a stable job, your emergency fund should be equivalent to at least three months’ worth of your typical expenses. Those with less confidence or an unstable income should aim for at least 6 months’ worth of expenses.

But why keep that cash on hand when you could use it to pay off debt? Well, assuming you need quite a few months or even years to pay off your debt, not having an emergency fund during all that time would mean that if you ran into am emergency such as an unexpected illness or job loss, you’d be in the red, which could lead in your getting into credit card debt or taking out predatory personal loans to stay afloat.

Stay away from high interest debt like the plague

When you’re already struggling to pay off your existing debt, the last thing you want to do is to get into more debt.

In particular, you need to stay away from high interest debt like credit card debt. Not being able to pay off these types of debt quickly can cause them to increase in amount at an alarming pace, and when such debt spirals out of control people can go bankrupt.

Now that you’re having cashflow problems, your risk of not being able to pay your credit card bills in full at the end of the month is particularly high. So it’s all the more important for you to avoid borrowing any more money you don’t have as that would add to your already heavy financial burden.

One way which many people deal with high credit card debt is using a personal loan to consolidate their debt and pay off what they owe that is generating a much higher interest. Think about the difference between 24% and less than 5%. That’s huge on a month to month basis. Personal loans also force you into a fixed repayment schedule which is good if you’ve been ill disciplined about repaying your debt. While we don’t advocate taking on loans for no good reason, getting rid of high-interest debt is certainly a good reason, and you can find some really competitive personal loan rates at MoneySmart’s Personal Loan Comparison Page.