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How to Stop Living Paycheck to Paycheck

Here’s what it means to live paycheck to paycheck: All of your income goes to paying your monthly expenses. There isn’t any money left after you pay the bills.

Around 64% of Americans are living paycheck to paycheck, according to a May 2022 LendingClub survey.

You might think that this is an issue only for those who have low incomes. But it can happen to anyone at any income level. In fact, an earlier version of the study also revealed that 48% of those making in excess of $100,000 a year lived paycheck to paycheck.

The inflation rate for the past 12 months ending April 2022 was 8.3%. High prices might be a factor in the jump in consumer revolving debt, which includes credit card debt. The Federal Reserve’s consumer credit report shows there was a 29% increase in revolving debt in March 2022 over February 2022.

For some, increasing income may not be possible at this time. But whether or not you can find a way to make more money, here are some suggestions to help you survive until your situation improves.

How to Survive the Paycheck-to-Paycheck Life

Living paycheck to paycheck is full of stress. It’s almost impossible to build an emergency fund because there isn’t any money left over. It’s like walking on a high wire without a net. If a sudden financial crisis happens, such as an expensive car repair, it might mean going into credit card debt because your cash flow can’t cover anything extra.

Here are a few tips to consider if you’re in survival mode:

  • Keep a low-interest credit card. If you must use a credit card as a temporary emergency fund, get the lowest annual percentage rate you can qualify for. This is not a perfect solution, but it will at least lower the amount of compound interest on your balance. And you’ll have the card on hand for emergencies that need to be paid for immediately. 
  • Use a 0% purchase APR credit card. If you have a sudden expense, but you have time to apply for a new credit card, consider a 0% purchase APR credit card. These cards offer the chance to pay off an expense over 12 to 21 months without accruing interest. This works best if you know your situation will improve in a year or so.
  • Create a ruthless budget. I acknowledge this is a painful choice to make. Consider this a temporary cutback until your cash flow improves. Decrease your discretionary expenses, which are the purchases or activities you pay for that are nice to have, but not necessary. 
  • Look into side hustles. If you’re already working crazy hours, this might not be possible. But if you can swing it, the extra income can bring you needed relief.
  • Ask for a raise. I know this won’t work for everyone, but do some research to see what your market value is. If you’ve been with your employer for many years, you might learn you’re not making what you could on the open market. Finding a new job that pays your worth is another option to consider.
  • Get credit counseling: Drowning in debt? You can reach out for help. I often recommend contacting the National Foundation for Credit Counseling. They’ll direct you to an NFCC-accredited counseling agency, and help is offered by phone, online or in person with no initial cost. 

Once you’re out of survival mode, you can take steps to propel yourself toward financial health.

How to Stop Living Paycheck to Paycheck

As I already mentioned, income isn’t always the main factor. It’s possible to have an income that exceeds $100,000 per year and still be in a terrible financial situation. Perhaps you’re overspending or dealing with medical debt.

Whatever the root cause is for your cash flow issues, if you make a lot of money and you’re still not making ends meet, here are five steps to try.

Limit Your Spending

As you can see, the key to surviving the paycheck-to-paycheck life is also a key to getting away from that lifestyle.

Slash your budget and focus on needs, but do keep a few cheap treats for your own sanity. You’re going to take the money you save from this step and apply it to your credit card debt payments.

This is a temporary cost-cutting measure, so don’t get rattled. Stay focused on the ultimate goal: financial freedom.

Deal With Your Credit Card Debt

When you get out of debt, you’ll feel liberated. The next step to take back your financial life is to stop using credit cards. Only then can you start getting rid of debt. Here are some effective ways to get out of debt and limit the amount of interest you have to pay.

  • Get a balance transfer credit card. If you still have good credit, transfer balances you have on high-APR credit cards to a card with a 0% introductory APR. This is similar to the 0% purchase APR credit card. But with a balance transfer card, you get to pay down your balance without paying interest for a year or more.
  • Look into a debt consolidation loan. If you don’t have great credit at the moment, you can consider a debt consolidation loan. This combines your debt into one loan. It’s simpler because you have one monthly payment at a fixed rate. Most likely, you’ll have an interest rate that’s lower than the APRs on your credit cards.
  • The debt avalanche method. If the above two options don’t work, try the debt avalanche approach: Start by paying off the debt with the highest APR. Then you move on to the card with the next highest APR and so on. You pay less interest with this approach.
  • The debt snowball method. You start with the smallest balance and work your way to the largest balance. You pay more in interest, but those who use it say it keeps them motivated with quick wins.

Build an Emergency Fund

Start setting a little aside every week for a rainy-day fund. Over time, this will grow, and it will help you weather emergencies.

This does take time, so hang on to your low-interest credit card you used while in survival mode. Hopefully, you won’t need it. But life is unpredictable, so it makes sense to have low-cost options.

Consider a Side Hustle

Again, this suggestion won’t work for everyone. If you have kids and a stressful job, it’s probably not a good idea. But if you’re in a manageable situation at home, this can bring in multiple income streams. You might even find a sideline you can do from the comfort of your family room.

Keep a Few Treats for Yourself

You might think this runs counter to everything I’ve just said about spending limits. It doesn’t!

Add this line item to your budget: Budgeted Splurge. We’re talking about small splurges.

Instead of a weekly manicure, get a monthly manicure. Pick a small treat or two and work it into your budget. Cut back on your twice-a-week latte and only get one every two weeks. It would be nice if we could live a truly spartan life and save every penny possible. But depriving yourself of everything usually backfires.

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