Learn How to Set Yourself Up to Pay Your Debts
You are on step one of the Financial Ladder if your expenses are higher than your income and debts are starting to pile up. This can feel overwhelming, but the good news is that there is hope and a clear path forward. Taking action now can change your financial story and will help you to pay your debts.
The first thing to recognize is that you are not alone. A large portion of Americans face similar challenges. About 35 percent of adults with a credit file, roughly 77 million people, have experienced debt in collection. Around 23 percent have struggled to repay debts, sometimes leading to third-party collections after 180 days or more. These numbers show that financial difficulties are common, but they are not permanent.
By now, you may have already taken a close look at your finances, identifying ways to boost your income or reduce your expenses. This is an important first step and shows your commitment to turning things around.
Managing Your Income and Expenses
If you haven’t done so already, start by writing down your income, monthly expenses, debts, and any savings. Seeing everything in one place gives you clarity and helps you plan effectively.
Since you are currently on step one, with income below expenses, here are practical strategies to regain control:
- Avoid Using Credit Cards
Credit cards can make life easier, but adding more debt when money is tight only makes things harder. Many Americans carry high-interest credit card debt – some as high as 30 percent annually – so avoid new charges until your finances are stable. - Cook at Home
Dining out and coffee-to-go add up quickly. Home-cooked meals and bringing your coffee with you can save a significant amount. Set a realistic grocery budget, such as $8 per person per day, and stick to it consistently. - Pause Luxury Spending
Look critically at subscriptions, memberships, and other non-essential expenses. Entertainment is nice, but keeping a roof over your head comes first. Temporarily cutting these costs frees money for essentials and debt repayment. - Change Financial Habits
Impulse spending, gambling, or other costly habits can contribute to debt. Identify patterns that have led to your current situation and start changing them one step at a time. Even small changes make a difference over time. - Avoid Unnecessary Purchases
Before buying something, ask yourself if it is truly necessary. Wants can wait until you reach step two or three on the Financial Ladder. Focus on needs first and luxury items later. - Reduce Housing and Energy Costs
Consider ways to lower housing expenses, like taking on a roommate or adjusting your energy use. Even small reductions in utilities can add up and free up cash for debt repayment. - Pay Back Debts Strategically
Start with high-interest debts first, and consider negotiating better terms or consolidating loans to lower rates. Set a realistic monthly payment and make it a priority to pay it as soon as you receive your income. - Lower Insurance Costs
Review your insurance policies and compare options. Raising deductibles or removing unnecessary coverage can reduce monthly costs without sacrificing essential protection, thus helping to reduce your overall monthly expenses.
Increasing Your Income
If you are unemployed, focus on finding a job as quickly as possible. This steady income will help you cover essentials and start paying down debt. If you already work but still struggle, explore options for higher pay, overtime, or a second job. Even small increases in income can accelerate your progress up the Financial Ladder.
Moving Forward
Once your income exceeds your expenses and you begin reducing debts, you have officially moved toward step two. In fact, it is time to celebrate small victories – they build momentum. Remember, recovery takes time, but with clarity, discipline, and consistent action, you are on the path to financial stability.
Sources
- Federal Reserve Bank of New York, Household Debt and Credit Report, Q2 2025, https://www.newyorkfed.org
- LendingTree, Credit Card Debt Statistics 2025, https://www.lendingtree.com
- Bankrate, Average Credit Card Interest Rate 2025, https://www.bankrate.com
Disclaimer:
This blog is for informational purposes only and should not be your sole guide for financial decisions. Always consult with a qualified financial professional before making major financial commitments.
