How to Get Out of Debt and Start Saving: A Practical Guide for People Living Paycheck to Paycheck
- Jelly B
- Apr 9
- 4 min read
Debt can feel like a never-ending cycle, especially when you’re living paycheck to paycheck. You may find yourself juggling credit card bills, loan repayments, and everyday expenses, with little left to save at the end of the month. However, with the right strategies, you can pay off debt, improve your credit score, and start building your savings—even on a tight budget.
In this blog post, we’ll cover:✅ Different ways to pay off debt (even if you’re struggling financially)✅ Smart strategies to increase savings✅ How to improve your credit score for better financial opportunities✅ Financial schemes that offer interest on savings✅ Real-life examples of high-interest debt traps (like financed cars and mobile phones)
If you’re ready to take control of your money, let’s get started!
Step 1: Paying Off Debt When You’re Living Paycheck to Paycheck
If your income barely covers your expenses, paying off debt can seem impossible. But even small changes can free up extra cash to make repayments. Here are a few strategies to consider:
1️⃣ The Debt Snowball Method (Best for Motivation)
List all your debts from smallest to largest, regardless of interest rate.
Pay the minimum on all debts except the smallest one, which you attack with any extra cash.
Once the smallest debt is paid, roll that payment into the next debt.
This method gives quick wins, keeping you motivated as you clear debts one by one.
💡 Example:
Credit Card 1: £200 balance – Pay off first
Car Loan: £5,000
Student Loan: £12,000
2️⃣ The Debt Avalanche Method (Best for Saving on Interest)
List debts from highest to lowest interest rate.
Pay the minimum on all, but focus on clearing the highest interest debt first.
Once paid off, move to the next highest.
💡 Example:
Store Card: £800 at 29% APR – Pay off first
Credit Card: £3,000 at 22% APR
Personal Loan: £5,000 at 10% APR
🔹 Best for: Long-term savings, as it reduces interest payments significantly.
3️⃣ Debt Consolidation Loan (Best for Lowering Interest Rates)
If you have multiple high-interest debts, consider consolidating them into one loan with a lower interest rate. This reduces monthly payments and makes it easier to manage.
🔹 Best for: Those with a decent credit score who qualify for a lower-rate loan.
4️⃣ Balance Transfer Credit Card (Best for Credit Card Debt)
Some credit cards offer 0% interest on balance transfers for up to 24 months.
Transfer your balance from a high-interest card and pay it off within the interest-free period.
💡 Example:
Moving £3,000 from a 22% APR credit card to a 0% interest balance transfer card could save you £660 in interest per year.
Step 2: Why Paying Off High-Interest Debt Is Urgent
The longer you stay in high-interest debt, the more money you waste on repayments. Here’s how much interest people commonly pay:
📌 Credit Card at 22% APR
Balance: £3,000
Paying only the minimum: Could take 15+ years and cost over £4,500 in interest!
📌 Financed Car at 10% APR
Car price: £15,000
Monthly payment: £350 over 5 years
Total cost: £21,000 (That’s an extra £6,000 in interest!)
📌 Mobile Phone on Contract
Latest iPhone: £1,200 upfront or £55 per month for 3 years
Total cost: £1,980 (You paid £780 extra just for financing!)
Solution? Avoid financing unnecessary purchases and focus on clearing high-interest debt fast.
Step 3: Smart Ways to Start Saving (Even on a Tight Budget)
Once debt is under control, the next step is building savings so you don’t fall back into debt when emergencies arise.
1️⃣ The 50/30/20 Budget Rule
50% – Needs (rent, bills, food)
30% – Wants (entertainment, shopping)
20% – Savings & debt repayment
If money is tight, adjust it to:
60% Needs / 10% Wants / 30% Savings & Debt
2️⃣ The £1 Savings Challenge
Start by saving £1 on day 1, £2 on day 2, and so on for a month.
At the end of 30 days, you’ll have saved £465!
3️⃣ Open a High-Interest Savings Account
Many banks offer 4-5% interest savings accounts where your money grows over time. Consider:✅ Regular Saver Accounts – Some pay 5% interest if you deposit monthly.✅ Lifetime ISAs (LISA) – The government adds 25% bonus to your savings (up to £1,000/year).✅ Fixed-Term Savings Accounts – Higher interest if you don’t withdraw for a set time.
Step 4: How to Improve Your Credit Score
A good credit score makes it easier to get lower interest rates on loans, saving you thousands.
📌 Quick Ways to Improve Credit:✅ Always pay bills on time (even the minimum amount keeps your score stable).✅ Reduce credit card balances – Keep usage below 30% of your limit.✅ Don’t apply for too much credit at once – Too many applications lower your score.✅ Check your credit report for errors using Experian, Equifax, or TransUnion.
Start Small & Stay Consistent
Getting out of debt and increasing savings is possible, even on a tight budget. The key is to:🔹 Prioritise paying off high-interest debt first🔹 Use smart budgeting methods to free up extra cash🔹 Take advantage of high-interest savings schemes🔹 Be consistent and patient—small progress adds up!
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