Better Low Income Living: Staying Out of Debt

Recently, the news has reported that poverty in America is up to levels that it hasn’t seen in decades. It’s not easy to live with a limited budget: as a homeschool teacher and writer married to a college student, we know what it’s like to have a low income. While living with a tight budget is not fun, there are things that you can do to improve or hurt your situation. One thing that usually will hurt your budget is borrowing money.

Avoid Borrowing Money

My number one rule for living better on a low income is not borrowing money if I don’t have to. When you borrow money, of course, you have to pay it back. This ties up some precious resources that could be used for other things. There are times when an emergency pops up and you might have to borrow money, but it’s important to pay cash whenever possible.

One example is furniture. When I got out of college, I didn’t have enough money to buy a couch. My husband and I sat on the floor for a while, because we couldn’t afford to pay cash for furniture. Eventually, our income went up and we did borrow money to buy a couch, but we were making a lot more money then, and even then, I was glad to pay it off. My friend decided to buy some money from a rent-to-own place. She told me that she would have never been able to save up that kind of money on her own. I responded that if she couldn’t afford to save for it, she wouldn’t be able to afford the payments either. She ended up having to return the furniture, but even if she had paid it off, she would have paid a lot more to rent her furniture than she would have if she would have saved up for it. The last time I bought furniture, I went to Ikea and paid cash for it.

Other places that you should avoid borrowing money from if you’re living off a limited income are pawn shops and payday loan places. Both charge a lot of interest; if you can possibly do without the money for a while, try to do so. Avoid hefty overdraft charges at your bank by telling them that you don’t want the courtesy overdraft coverage; it makes me sick to think about how much money I wasted in overdraft fees over the years.

When to Borrow Money

The biggest exception to not borrowing money is taking out a student loan. If it’s the only way to go to college, it might be worth it. Student loans can’t be discharged in bankruptcy, and can be a pain to pay off, because it seems to take forever, but if you can’t find a job after you finish your education, at least you’ll be able to apply for an income-based payment plan.

You may have to borrow money to buy a car. Even a decent used car is expensive, and the payments might be difficult to afford. We all have to get to work somehow, and depending on where you live, the bus may not be an option. Borrowing money to buy a car might not be a necessity though. One year, I took part of my income tax refund and bought a car from a person in the newspaper for $1400. It’s not a great car, but it can never be repossessed. The last time I had a car loan, I had trouble making the payments on time. I was constantly in fear of not being able to make the payment and having the repo man show up at my door. Paying off that car was a great day.

Avoiding Loans

If times are tight, then you really can’t afford to take out a loan. How do you pay for things in emergencies then? Try to

set some money aside for an emergency. That way, when the car needs to be repaired or your grandma has been given 24 hours to live, you have money to take care of that expense. If you think that you could afford to pay back a loan, why not take that amount of money out of your bank account every month and set the cash aside, or get a separate bank account that’s hard to get to, and move money into that account? You might not be able to save very much, but any amount will help you avoid debt later.

You can also avoid loans by figuring out what is a want and what is a need. Kids love to get nice presents for Christmas and birthdays, but if you can’t afford to pay cash for it, then you probably can’t afford it. If it’s not a need (or perhaps an extreme, once in a lifetime want like seeing grandma when she’s on her deathbed), then try not to borrow money for it.

If you’re already in debt, do your best to not borrow any more money and pay off what you have already borrowed. Even if you’re having trouble earning a decent wage in this tough economy, becoming debt-free is like getting a raise. The average car payment is $479 a month; a typical family might have to pay $100 a month on their credit cards. If you had this kind of debt and were able to eliminate it, you would save enough money that it would feel like you were earning about $7000 more per year.


“ABCs for a Great Car Loan” MSN Money.

Personal experience.

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