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You’ve got some debt you’d like to knock out, right? We all do!

The miserable truth is: to pay down debt, it’s not enough to make the minimum payments. You really need to throw extra money at the debt to make a difference.

But what if you’re struggling to just pay all your bills and get food on the table? What if you’re having a hard enough time just paying the minimum balances on your credit card statement? And now we’re telling you to make money appear out of thin air to make bigger payments on your credit cards and student loans?! Yeah, ok, sure. 😐

Here's the trick to paying down debt even when you can't pay all your bills

The Problem

I’ve been there! At 22, I was making $12/hour as a receptionist, and Jarrod was in school and working part-time at Home Depot for like $9/hour. That money doesn’t go far in San Diego! We were living in a shady neighborhood (shout out to the gentrified North Hills!) with a homeless guy living under our alley-facing balcony. I just wanted $20 to buy the new Harry Potter book. $100/month to make extra payments on our debt was a pipe dream!

At the same time, our debt was costing us over $20/month just in interest! This is an uber important concept. Debt doesn’t only suck because you owe money. Debt sucks because you have to pay interest on the money you owe! And if you’re carrying credit card debt, you could be looking at a crazy-high 20% interest rate (for comparison’s sake, home loan interest rates are like 4%).

Now, if we were too broke to put any extra money toward reducing our debt (which we were!), we were certainly too broke to throw away money on interest.

Sound familiar?

Check Your Credit Card Statements for the Minimum Payment Warning

If you’re a typical 22-year-old, making minimum payments on your credit cards, you may have grandchildren before you pay off your credit cards. Not even kidding. And that’s only if you stop using your cards now and don’t start using them again.

Since 2010, credit card companies are required to warn you about the risks of paying the minimum balance. Go grab your credit card statements and look for something on the front page that shows your minimum payment due and your three year pay-off amount.

This snippet is the warning from my credit card statement:

Here's how to pay down debt even when you can't pay all your billsFirst: Notice that there’s no interest rate in this snippet. The interest rate is buried in the fine print. I have good credit, so my interest is a “reasonable” 15%. 😐

You can see that I would need 23 years to pay off my $5,286.01 balance if I pay $52/month. And it would end up costing $6,146.99 in interest alone ($11,433 minus $5,286.01). Gross!

But if I pay $182 every month for 3 years, I’m done in 3 years, and I save $4,869 in interest charges.

But then I’m still paying $1,277.99 just in interest ($6,564 minus $5,286.01). I could really use that $1,277.99 elsewhere! That $1,277.99 interest over 3 years averages $35/month. I’m not interested in throwing away $35/month just on interest.

And that’s the big problem. If you’re struggling to make ends meet, you really can’t afford to waste money on interest payments. But you also clearly don’t have the money to pay down debt to avoid the interest charges. What are you supposed to do?!

The Solution

There is a way out. It just takes some creative thinking and a can-do attitude.

Here’s our 4-Step Solution to pay down debt even when you can’t pay all your bills.

Step #1: Find More Money to Throw at Your Debt

If you’re consistently struggling to pay your bills each month, you only have two options to permanently fix the problem:

  1. Make more money
  2. Spend less money

That might sound snarky, but it’s important to remember that about half of personal finance is just increasing income and decreasing expenses. In this world of detailed budget advice and personal finance hacks, we tend to over-complicate this really simple reality.

Once you realize your only two options are to make more or spend less, you can start formulating a plan to pay down debt.

Spend Less Money

We’ll start with spending less because it’s usually a more immediate solution than making more.

Solving the Spender Problem

First, if you’re a spender by nature, buying stuff you don’t really need because the money (or credit!) is burning a hole in your pocket, you need a fool-proof plan to limit your spending.

You can’t just rely on your willpower to spend less. Willpower is over-rated! No matter how strong your willpower is, it will fail you. You need something stronger. You need to take away your options so you literally can’t fail!

Here’s how:

  • Cut up your credit cards – can’t use ’em if you don’t have ’em
  • Log in to any sites with your credit card info stored and delete the card info – don’t want to leave yourself a way to just buy a bunch of crap on Amazon.
  • Create auto-transfers to take money out of your bank account right after payday (before you have a chance to spend the money). This money could be whisked off to an emergency savings account until you have 3-6 months’ living expenses saved. You could even set-up auto-payments to pay down some of your extra debt right after your paycheck hits your account. And after your emergency savings is built, and your high-interest debt is paid down, it can be auto-transferred to a retirement account.
  • Try cash-only for daily expenses. Studies have shown that people are more careful with their money when they use actual physical money. Head to the ATM and pull out just enough for groceries and necessities for the week. Then leave your debit card at home until next week’s ATM run.

This fool-proof system just takes one moment of strength to implement, and it will save your tush in all your future moments of weakness.

Here's the trick to paying down debt even when you can't pay all your bills

Finding Creative Ways to Save

If you’re not spending frivolously, see if you can find some creative ways to save money on your monthly expenses like food, toiletries, and utilities.

But many of you are already minimizing your spending. You’re cooking at home instead of eating out, using drugstore makeup instead of MAC, couponing for Heaven’s sake! So then what? Then your only solution to pay down debt is to make more money.

Make More Money

First, promise yourself that if you make more money, you’ll apply it toward your debt instead of spending it on things you don’t truly need.

Then, try to negotiate a pay raise. Women often have a hard time asking for more money. But no one’s just going to voluntarily give you a raise, even if you’ve earned it. If you want more money, you have to ask! And we have a Do’s and Don’ts list to help you make your ask effectively.

If you’re not able to negotiate a raise, you can start an income-producing hustle. And we’ve got lots of recommendations:

So now you should have a plan to make money available for your extra debt payments, and you can move on to Step #2.

Step #2: See if You Can Reduce Your Interest Rates

If you can reduce your interest rates, you can save yourself a ton of money!

Credit cards: credit card companies aren’t just going to be cool and lower your rate for you. But credit card companies are super competitive, and there are companies that are willing to give you a 0% introductory interest rate if you move your debt to them from their competitor. They are banking on the idea that you’ll fail to pay off your balance during the introductory period, and you’ll owe that interest to them instead of their competitor.

But you’re going to take advantage of that business practice and pay off your debt before the period expires, so you effectively completely eliminate your credit card interest!

Another great way to reduce interest rates is to consider refinancing your student loans. “Refinancing” is an intimidating financial word, but it just means changing your repayment terms. We have a whole post to guide you on student loan refinancing.

When your rates are as low as they’re gonna get, you’re ready for Step #3.

Step #3: Create a Custom Champagne Waterfall Debt Payoff Plan

The Champagne Waterfall Payoff Plan (which you may know as the “Debt Snowball” payoff plan), is brilliant! It’s a strategic way to pay off your debt that will result in thousands, maybe tens of thousands in savings!

Using the Champagne Waterfall on my debts is saving me $39,047 in interest over the next 8 years!

So here’s how it works:

Instead of paying the minimum balances on your debts, you use the extra money you found in Step #1 to make bigger payments on just one of those debts: the debt with the highest interest rate. The point is to save as much as possible in interest, so you want to knock out the highest-interest debt first.

Once that first debt is completely paid off, you take the amount of money that you had been paying on that debt, and roll it into future payments on the next highest interest debt in line.

A visual helps illustrate this:

Here's how to pay down debt even when you can't pay all your bills

See how the payment for Credit Card B jumps from $50/mo to $250/mo once Credit Card A is paid off? It’s because we’re adding the $200/mo that we used to pay on Credit Card A on Credit Card B.

That’s how you pay down debt years faster and save thousands in interest.

Step #4: Follow Through

This is the hardest step. Once you have your custom debt payoff plan, you need to actually follow it. Make those payments! And avoid new debt unless it’s a strategic smart debt designed to improve your life and your net worth.

A visual reminder of your payment plan to pay down debt makes it easier to follow through. I quite literally printed my Payment Schedule and posted it on the cork board by my computer so I could check off my payments on each debt each month.

Added bonus: once your last debt payment is made, you can swing all that money immediately into savings and investments since you’re already used to living without it! Score!

Feel Like Sharing?

Want to crunch your numbers on the calculator and let us know how much you’re going to save? Leave it in the comments!

Cheers! From Savings and Sangria

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