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6 Ways to Get Out of Debt Faster Despite Having Low Income

Moneymax Editorial Team

Moneymax Editorial Team

Last updated August 09, 2021

Debt is an issue that many people contend with. The more you borrow, the harder it is for you to pay. The higher your debt, the more complex your life becomes. A lot of Filipinos are still wondering how to get out of debt on a low income. And the answer is not simple.

Paying off debts sounds easy for those who are earning more than the minimum wage. But what if you’re living paycheck-to-paycheck, and you barely have enough left to settle outstanding debts?

Dealing with debt when you have a low income is a difficult task. However, according to Lisa Aberle of Get Rich Slowly, “You have to be determined to challenge your comfort zone because no matter how uncomfortable it may seem now, challenging your status quo is hard.” It doesn’t matter how hard it is to get out of the debt trap. What matters is your will to break free from the agony of debt repayments.

The Problem: Having a High Debt-to-Income Ratio

Someone gets into debt for many reasons. But whatever reason that is, a borrower usually gets drowned in debts because their debt-to-income ratio is not clear to them and things begin to get out of control.

How to Calculate Your Debt-to-Income Ratio

how to get out of debt on a low income and compute debt-to-income ratio

In a perfect world, the ideal debt-to-income ratio[1] is 36% of your income. Look at the formula and sample computation below.

Debt-to-Income Ratio Formula

(Total monthly debt payment ÷ Gross monthly income) x 100 = % Debt-to-income ratio

Sample Computation

(PHP 10,000 ÷ PHP 30,000) x 100 = 33.3%

The example above shows the portion of your income that should be set aside for debt payments. If your monthly salary before tax deduction is PHP 30,000, you’ll have only PHP 20,000 left to pay for your tax, government contributions, other bills, and necessities. If your utility bills cost an average of PHP 3,000, your food spending is at PHP 6,000, your rent is at PHP 4,000, transportation cost is at PHP3,000 and your total monthly deduction for contributions and tax is at PHP3,000, then roughly your extra money left would be PHP 1,000.

Gross monthly income: PHP 30,000


  • PHP10,000 - Debt payments
  • PHP 3,000 - Utility bills
  • PHP 6,000 - Food
  • PHP 4,000 - Accommodation/rent
  • PHP 3,000 - Transportation
  • PHP 3,000 - Tax and other contributions

Total amount of payables each month: PHP 29,000

PHP 30,000 (monthly receivable) - PHP 29,000 (monthly payables) = PHP 1,000 (extra money)

The given computation shows you can no longer apply for an additional debt because it will be impossible for you to pay off using the remaining money you have each month.

Banks take into consideration your debt-to-income ratio whenever you apply for a loan. It is a clear indicator if you are at risk of getting into financial difficulties. Anything higher than the ideal 36% means a possibility of defaulting on your loan or difficulty settling monthly payments on time.

Before applying for a loan, you should also do the math. Calculate the total of monthly installments you need to pay. If your debt-to-income ratio goes beyond the ideal 36%, then you should look for other alternatives to get cash.

If you fail to calculate your debt-to-income ratio, you tend to grab every borrowing opportunity there is—regardless if you don’t have the money to pay for it. Sometimes, it’s already too late to realize that the income could no longer cover the liabilities. Before you know it, the road to a debt-free life has gotten longer because you went beyond your financial limits.

The Bad Triggers: What Causes Borrowers to Stay in Debt?

how to get out of debt on a low income - control your spending

Aside from not being aware of their debt-to-income ratio, a lot of Filipinos borrow from banks and loan sharks for a few bad reasons, including the following:

1. Debt Repayment is Not a Priority

A lot of people stay in debt because they prioritize other things more than paying their obligations. They tend to forget that debt repayments become more expensive when payments are delayed.

Read more: What Happens if You Stop Making Loan Payments

2. No Prepared Budget Plan

According to author Natalie Pace, a debt problem is, at its core, a budgeting problem. People who don’t have a budgeting plan usually get into debt because they don’t know where to allocate their finances. A budget will help you manage your money and control your spending. With a good budget or financial planning, you’ll no longer ask how to pay debt with low income.

3. Uncontrolled Spending

Controlling your expenses by prioritizing your needs can help prevent impulse buying. Some credit cardholders don’t make a list of what to buy, so they end up paying for items they don't need. As a result, they just max out their credit limits and worry about where to get the money to pay off their credit card balance.

4. Keeping Up with the Trend

Your neighbor just bought a 50-inch smart TV in the last online sale. Because you want to be at par, you bought one too, even if the item is not on sale. Struggling to keep up with trends can be very costly and can lead you to pay more debts than you planned.

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The Challenge: How to Get Out of Debt on a Low Income

Debt is inevitable, especially in this trying time. According to Fitch analysts, non-performing loans or unpaid consumer loans will increase by 5%[2] at the end of 2021 because borrowers find it difficult to repay their debts.

Although it is understandable that people get into debts and will stay in debt during the pandemic, banks don’t spare you from paying the charges and penalties. As of this writing, the lifeline Bayanihan 3 has not yet been approved into law, so debt relief schemes will not yet apply to outstanding loans.

You need to realize that debt puts a real weight on your finances. The sooner you’re done with paying it off, the better. It doesn’t matter if it’s a credit card debt or an amount you borrowed from a relative or a friend. What’s important is you have the will to kick off your debt repayment journey and break free from debts immediately.

The Action: Budgeting, Spending, and Other Ways to Pay Off Debts

how to get out of debt on a low income - spending plan

1. Evaluate Your Situation

The first thing you need to do is to determine your financial situation. How huge is your debt and how much money will you need each month to pay for it?

Let’s say that you’re single, independent, and earning PHP 12,800 every cut-off (after taxes) and have a debt of PHP 45,000.

If you’re determined to get rid of your debt with your income, you need to account for all of your expenses—every little thing from your transportation allowance to the cheap snacks you buy every now and then. You should build an accurate and realistic budget to help you start paying off your debt.

2. Create a Spending Plan

However, if budgeting doesn’t work for you, what you can do is create a spending plan to ensure that you pay off your debt first.

Keep in mind that you have recurring expenses to deal with: rent, groceries, and allowances for commuting, to name a few. If you’re living on your own, rent and utilities eat up most of your expenses.

Your spending plan will allot a large percentage of your monthly salary towards paying the debt. For example, PHP 5,000 of your salary will go to your debt payment every month.

This is what your spending plan can look like if your net monthly income is PHP 12,800.

  • Debt payment: PHP 5,000
  • Recurring expenses
    • Rent: PHP 3,300
    • Utilities: PHP 1,000
    • Groceries: PHP 1,500
    • Transportation: PHP 1,000
    • Spending money: PHP 1,000
  • Total: PHP 12,800

Since your income is low, you might need to pause saving money first. Paying off debt and saving at the same time is doable, but it’s difficult. Better focus on how to pay off debt first then start saving again when you have cleared your debts.

Read more:

3. Find an Additional Source of Income

An alternative to getting out of debt faster is to find or create a second income stream for yourself. Get a part-time job or work freelance. Doing this will help you pay off your debt and save money at the same time.

Income from a part-time job will depend on how much work you’re willing to take on. Most freelance jobs can be found online and are excellent second sources of income. Remember to manage your expectations, though. Some online gigs don't pay regardless of your experience or qualification. If your goal is to earn a little more, probably accepting minimal compensation can make a difference in your debt repayment goal.

You may also want to tap into your hidden talents or skills. You may have a cooking prowess you’ve never unleashed before. You can start creating your recipe or a new version of a baked goodie to offer online.

4. Don’t Get a New Debt

Stop borrowing for a while even if the offer is too good to ignore. Now is the time when credit card companies and banks contact you for limited offers. Logically, new debts mean making your monthly payments higher. As much as possible, refrain from acquiring additional loads to be paid each month until existing debts are settled.

5. Consider Debt Consolidation or Balance Transfer

Not all new debts are bad, though. Some bank products like balance transfers on credit cards and debt consolidation on personal loans are a huge relief if you have debts from several lenders.

A credit card balance transfer allows you to pay off all your outstanding balances in all your other credit cards at a lower interest rate. On the other hand, debt consolidation on personal loans can be very beneficial if you wish to lower the costs of your debts and or the number of your monthly installments.

These options are practical, but you have to remember that the loan terms will be much longer because transferring all your debts into one account means opening a new one.

6. Reduce Your Expenses

Have you subscribed to an online service that you have not used for the last two months? Are you spending too much on new clothes even when you haven’t worn the new ones you bought last month? How frequently do you order food online? All these and more are questions you should answer to make sure your money isn’t wasted on unnecessary stuff.

Reduce your expenses by evaluating how much have you spent on subscriptions, utility bills, and food deliveries for the last three months. This way, you can better manage your income and make enough room to pay your debts.

Final Thoughts

Every debt repayment journey requires sacrifice. It will be hard, especially if you’re used to rewarding yourself with gadgets and stuff each month. But when you’re tempted to stop and spend on non-essentials once more, look ahead. Imagine how peaceful your life would be in the next 12 to 24 months after paying off your debts. Once you achieve that, you’ll never have to worry about how to get out of debt on a low income.

The ability to pay down debt largely depends on your willpower. It doesn’t matter how much you’re earning each month. A huge part of the journey depends on how willingly you can sacrifice to earn more, spend less, and say no to luxury. You can do it. Good luck!

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The Moneymax Editorial Team consists of talented and experienced writers, editors, investors, and subject matter experts on a mission to help Filipinos build healthier financial lives. Browse the Moneymax blog for information and advice on credit cards, loans, insurance, investments, and other personal finance topics. For more financial news and articles, follow Moneymax on LinkedIn.


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