How to Pay Off Debt When Living Paycheck to Paycheck

According to a report from the Federal Reserve Bank of New York, total household debt increased by $312 billion in the second quarter of 2022, soaring to $16.15 trillion. Americans are drowning in debt, and many are living paycheck to paycheck.

Living paycheck to paycheck feels like an endless cycle where you can never get ahead, and roughly 63% of Americans live this way. in addition, 27% of Americans have no emergency fund to carry them through if a crisis arises.

But there can be a solution. If you set a budget and focus on spending habits, you can break the cycle.

16 ways to break the paycheck-to-paycheck cycle

There is no shame in living paycheck to paycheck. It doesn’t necessarily mean you’re living in poverty. In December 2022, 51% of workers who earn more than $100,000 reported running out of money by the time the next payday rolled around.

Regardless of your income, it can feel crushing. Once your household receives its compensation, it is gone by the next payday — or before. Routinely making minimum payments toward your debts can make you think you will never be debt-free. Unexpected expenses can push consumers to spend more on credit cards and further into debt. 

Pro Tip: You can use Reddit’s Poverty Finance subreddit as a resource and support network. Many members of that group are working to break out of living paycheck to paycheck and regularly share frustrations and helpful advice.

Here are 16 ways to help you break the cycle:

1. Total up your debts, and set a strict budget

The first thing you can do to stop living paycheck to paycheck is to create a strict budget. Figure out exactly how much money you have coming into your household and how much you owe on monthly expenses. It can also be helpful to create something that highlights your financial goals. When sticking to a budget gets tough, remember where you want to be in the future with your personal finance.

You will also want to total your credit card debt, know what interest rate you pay on all your credit cards, and devise a plan to pay this down. Getting a handle on your debt is the first thing you want to do when trying to get out of living paycheck to paycheck.

To get started, check out these top personal finance blogs and podcasts.

READ MORE: How to start a budget from scratch

2. Assess wants vs. needs

First, break down your necessary monthly expenses. Food, mortgage payment, car payment, and utilities are the priority for your financial situation. Once your budget for necessities is covered, you can add non-essentials like entertainment or clothing. You need to keep your budgeting realistic. If you limit yourself strictly to necessities, you’ll set yourself up for failure. Then calculate any student loans or credit card debt you need to pay off. Once you have those covered, tackle the unnecessary expenses. Unnecessary expenses include streaming services, gifts and eating at restaurants. 

Adopt either the debt snowball or debt avalanche method of paying bills to knock down your debt.

Choose a repayment plan

  • The debt snowball method: This is when you pay the smallest debt to the largest. When the smallest debt is paid, you roll the payment you made on that debt into the next smallest payment. You pay as much as possible on all your smallest debt until all is paid in full.
  • Debt avalanche method: The debt avalanche method is a debt repayment strategy that starts by paying off your debt with the highest interest. Once you pay off that debt, you continue paying off your next highest-interest debt.

READ MORE: Debt snowball vs. debt avalanche

3. Start an emergency fund

Now that you are on a budget, it’s crucial to start an emergency fund as soon as possible. Take the extra money you save by cutting unnecessary expenses and make monthly deposits to your savings account. Use direct deposit, so there is no temptation to spend that money. Once you have at least $1,000, you can stop working on the emergency fund and put that money toward debt repayment. Emergency savings is essential because when an unexpected expense arises (and it will), you won’t need to go further into debt.

4. Cut up your credit cards

Keep one in a safe place to access it in an emergency or when you need purchase protection or other benefits the card offers. Otherwise, stop using them. Delete any cards that are saved in your online accounts. Pay for everything with your debit card, or force yourself to retype your credit card information whenever you’re tempted to buy something online. This can also help curb impulse purchases because you may not have cash when faced with the immediate temptation to buy. Sometimes, if you wait a day or two, you’re thinking more clearly and may not even want that item at all.

5. Use the envelope method

This is where you cash your paycheck weekly (or go to the ATM and withdraw your spending cash) and earmark it in envelopes. Have one envelope for groceries, one for utilities, one for insurance, one for your monthly subscriptions and entertainment expenses, one for gas, etc. If one envelope runs out of cash too soon, borrow from another until payday.

Pro tip: Credit cards have made it simple to spend money without thinking about it. You can buy stuff just by clicking a button on your phone, which is great for convenience, but not ideal for weighing whether you truly need that $9.99 bonus pack from Candy Crush or the $2.99 ebook from Amazon.

Don’t like carrying cash? Use reloadable Visa gift cards. You may even already have some in your wallet or car.

6. Get a side job

A side hustle is an excellent way to get extra income and stop living paycheck to paycheck. Save the money you make on the side and use it for debt payoff. If you make more money from a second job, the key is to spend less. With more income, continue to live below your means. Pay your smallest debts first and continue working on your debt reduction process.

Driving for Uber, delivering for Instacart, or dog sitting and babysitting are great side gigs.

READ MORE: Ways to earn cash fast when you’re in a pinch

7. Change your living arrangements

Living expenses such as rent or the mortgage are often one of your most significant expenses. See if you can downsize your living arrangements to save money. If your mortgage payment is stretching your bank account thin, it could be time to reconsider where you live. If you have an apartment and are paying high rent, consider finding a roommate to help split the living costs. What may seem like an inconvenience now can pay off in the long run. 

8. Negotiate your bills 

Contact your creditors and see if you can get a reduced rate for your monthly charges. Contact your utility providers and ask about any hardship programs they have available. Feel free to ask the companies you pay if they can do anything to help you get reduced payments because you cannot continue paying the way you have up to this point. It doesn’t hurt to ask if there are any discounts available. 

Pro tip: The worst that can happen is that someone can tell you no. You have nothing to lose trying this.

Some apps, such as Truebill, will negotiate bills on your behalf and check to see which streaming services you have signed up for that you may be able to cancel.

READ MORE: Need help now? How to get free money and other assistance

9. Sell unnecessary items

If you are stuck living paycheck to paycheck but have a motorcycle that is not your primary source of transportation, it may be time to get rid of it. Get rid of as many unnecessary payments as possible. Take stock of what you are trying to accomplish with your financial goals and if you can sell some things to help with debt payments. If great-grandma’s glassware collection is sitting in a box in storage and you aren’t sure what it’s worth, get an appraisal. Sometimes the items simply taking up space in your home can be surprisingly valuable to collectors.

Unwanted items, such as clothing you last wore years ago, are an excellent way to earn extra cash by selling on eBay, Craigslist, Poshmark or Mercari. Just be safe about it. Have someone with you when the buyer comes to get the items or agree to meet in a safe space, like the police station parking lot.

If you want to do it the no-hassle way, you can try a service like ThredUp, which handles the sales legwork on your behalf, but you’ll get considerably less money for your items.

READ MORE: Best ways to find cash in a pinch

10. Consolidate your debts

A debt consolidation loan may be a good option if you have unsecured debt and need help to balance multiple minimum payments. Consolidation is done through a personal loan from your lender or through a balance transfer credit card. Typically, the interest rate associated with debt consolidation loans is lower, so you could pay less in the long run.

Pro tip: Be aware that your credit score factors into debt consolidation. If you have a poor credit score, you may only qualify for the highest interest rates for your loan. Before applying with a lender, it is beneficial to pull your credit report and inspect it closely. See how you can increase your credit scores by bringing your credit utilization under 30%, checking for errors and correcting them, and ensuring you are not making late payments.

If credit card debt is the primary concern, a balance transfer credit card can consolidate those multiple minimum payments into one card with one monthly payment. Again, you will need good credit scores for 0% balance transfers to roll over your highest interest rate credit card balance into this new one. You can often utilize up to 80% of this new credit line from the 0% interest credit card.

READ MORE: 5 best debt consolidation loan options

11. Try debt settlement

Debt settlement can be a way out of a bad situation. Debt settlement is a negotiation process that gets your debt discharged for less than the total you owe. In exchange, you commit to either one lump-sum payment or a series of term payments. While this procedure usually involves a professional debt settlement company that sets up the deal on your behalf, you can do it yourself. If your unpaid debts are the reason you can’t make it until your next paycheck without running out of money, debt settlement will clear up your debts, ultimately stop debt collection efforts and get you a fresh start. Though you’ll pay a fee ranging from 15% to 27%, the settlement will get you out of debt for less than what you owe. On average, counting the fees, you’ll pay about 30% less than the original debt total.

READ MORE: Debt settlement pros and cons

12. Talk to a credit counselor

If you need help to stop living paycheck to paycheck, contact a nonprofit credit counseling agency. They may enroll you in a Debt Management Plan to help you become debt free. They will help you set a budget and negotiate with your creditors about your unsecured debt. They can often arrange for lower interest rates. They will continually assess where you can cut your spending and ways to save. You will repay the entire principal of what you owe but may pay back less interest over the repayment period. In addition, you’ll pay a monthly fee that ranges anywhere from $25 to $55.

READ MORE: Complete guide to credit counseling

13. Use the equity in your home

Homeowners have a few extra options for debt consolidation. You can apply a home equity line of credit (HELOC), a secured revolving line of credit against your home. This type of equity loan allows you to withdraw cash as needed and repay the balance at a variable interest rate.

You can also try a cash-out refinance, which is an entirely new mortgage loan. You can use the same mortgage lender or find a new one. You will use the proceeds to pay off your current mortgage and get the remaining equity in a lump sum. You can use this lump sum to pay down existing high-interest-rate credit cards and save some for an emergency fund or an investment.

There’s a limit to how much you can borrow, though. To determine how much you can borrow, lenders calculate your loan-to-value ratio or LTV. Lending to you will depend on several factors, including your credit score, income, and financial history. Lenders generally only allow you to borrow about 80% of the home’s value minus existing mortgage balances.

14. Use a budgeting app

Mint is a free all-in-one app from Intuit, the maker of Quickbooks, that brings your financial picture together. It monitors all your spending, cash flow, balances, budgets, credit, loans, investments, and credit scores. Some of the features include:

  • Bill tracker: They have a bill and subscription tracker that lets you know what you’re paying and when. You get notified before they’re due, if there’s a price increase, and when fees are detected. 
  • Cash flow tracking: The app helps you stay on top of your accounts, bills, and subscriptions. You get notified when your subscription costs increase and when bills are due.
  • Create custom budgets that help you save: You can easily create a budget in Mint. Mint automatically categorizes your transactions. You get notified before you go over and when the app spots budget improvements.
  • Finance calculators: They also have a budgeting feature that includes calculators for retirement, credit card payoff, net worth, grocery budget, home affordability, loans, budgeting, investments, travel budget, and student loans.

READ MORE: Best budgeting apps

15. Be scrappy

Search for strategies that can help you reduce spending. If you need to watch one particular show, don’t keep paying for the streaming service for the full year. Wait until all the episodes are available, sign up for a month, binge-watch your show, and then cancel. It’s even better if you’re eligible for a free trial of the service. Check with your credit card companies. Many offer free trial memberships to streaming services like Paramount Plus or food delivery services like DashPass. AmexOffers can sometimes have some fantastic deals, but they’re only deals if you need the items you’re buying. Once you’ve decided exactly what you need to buy, be sure you get a cash-back bonus. Use a site like Cashbackholic to search for the retailer, and buy through their link. You can get up to 10% back; sometimes, they offer bonuses. Run your grocery receipts through a cash-back site like Ibotta. Download the Zogo app. Zogo awards you points for learning about money and banking. While you won’t earn much cash (the average would be about $5 per week), you are being paid to learn about saving. It’s available for iPhone and on Google Play.

READ MORE: Are you drowning in debt? Here’s how to save yourself

16. File for bankruptcy 

This is last on the list because bankruptcy will have serious ramifications. Bankruptcy is a hard reset for those unable to repair their financial situation. If all else fails, bankruptcy could be your best option. Understand that bankruptcy will stay on your credit report and could affect future jobs and loan opportunities. However, it could be worth it because it offers a fresh start.

Pro tip: Bankruptcy is a powerful financial reset tool that shouldn’t be taken lightly. The bankruptcy will be on record and affect your credit history and score for the next seven to ten years. Please talk with an experienced attorney if you’re considering this.

If you’re considering bankruptcy, you’ll likely weigh two types: Chapter 7 or Chapter 13. Chapter 7 is the most common type of bankruptcy, but several key differences exist.

Chapter 7

Chapter 7 is known as “straight liquidation” bankruptcy. There is no repayment plan. The bankruptcy trustee collects and sells the debtor’s nonexempt assets and uses the proceeds to pay off creditors. Nonexempt assets can be sold by a bankruptcy court trustee assigned to your case.

A Chapter 7 bankruptcy can erase many types of consumer debt, including credit card debt and medical bills. These are considered unsecured debts. Many people saddled with consumer debt from department stores, bank loans, and other such debt may file for Chapter 7 too.

Bankruptcy law allows debtors to keep some property after going through bankruptcy proceedings. Property is called “exempt” property because it is exempt from a bankruptcy estate. For instance, you will need a vehicle to get to work.

Chapter 13

A Chapter 13 bankruptcy is known as a wage-earners plan. Chapter 13 is for someone with a regular income who repays all or part of their debt through a repayment or installment plan over three to five years, depending on how much steady income they make. In Chapter 13 bankruptcy, you must devote your disposable income to your repayment plan. Self-employed people often use Chapter 13.

Chapter 11

If you have a business causing you to live paycheck to paycheck, Chapter 11 may be your solution. A case filed under Chapter 11 of the U.S. Bankruptcy Code is often called a “reorganization” bankruptcy. According to the U.S. Courts website, the debtor remains “in possession,” has the powers and duties of a trustee, may continue to operate its business, and may, with court approval, borrow new money. 

Creditors vote on the proposed reorganization plan, and the court may confirm the program if it gets the votes and satisfies specific legal requirements. Chapter 11 usually involves a corporation or partnership. Although it is available to individuals, it is rarely filed by any. The main difference between Chapter 7 and 11 is that the entity filing for bankruptcy remains in control of operations and is not required to liquidate assets.

READ MORE: Types of bankruptcy

To learn how pervasive the paycheck to paycheck issue is in America, check out this news report:

The bottom line

To get ahead and break the paycheck-to-paycheck cycle, you will need to be disciplined, or you will outspend your income. There are several remedies. You can try meeting with a credit counselor to discuss your spending patterns, tighten your budget or pick up a side gig. Research the various solutions to determine which options work best for your financial situation, then take action and end the stress of living paycheck to paycheck.


Does living paycheck to paycheck mean you have no savings?

Living paycheck to paycheck refers to people whose entire paycheck is used to pay necessary expenses and who have little to no savings or emergency funds. It’s not restricted to people living below the poverty level. Shockingly, some people earn six-figure incomes and still live paycheck to paycheck, particularly if they live in a major city. In December 2022, 51% of workers who earn more than $100,000 said they live paycheck to paycheck.
Living paycheck to paycheck is also referred to as the working poor, and this can happen at all income levels but is typically limited to low-wage earners with limited skills.

What is the average amount of debt per person in the U.S.?

The average credit card debt is rising, and the U.S. average household owes a crippling amount. According to, the average American has $90,460 in debt. Transunion says the average credit card debt per U.S. adult was $5,525 in 2021.

Can I keep my house or car if I file for bankruptcy? 

One main reason to file Chapter 13 is to prevent the liquidation of all your assets. Sometimes called the Wage Earner’s Bankruptcy, Chapter 13 is ideal for debtors whose most significant problem isn’t lack of regular income but rather addressing creditors’ demands for immediate payment. If you have enough income, Chapter 13 allows you to repay part of your debts as an alternative to liquidating assets.
One key benefit is the opportunity to keep your home as long as you can pay the mortgage and any additional amount required by your Chapter 13 repayment plan.
Under Chapter 13, people have three to five years to resolve their debts, though they must apply their disposable income to debt reduction. The option allows debtors to avoid unsecured debts while catching up on missed mortgage payments, thereby preventing foreclosure.

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