How to Pay Off Debt and Save Money on a Fixed Income

Written by |

We all know it’s a good idea to pay off debt and save money, but that can be extremely difficult if you’re living on a fixed income.

The U.S. Census Bureau estimates that the median household income for those living in the United States in 2019 (the most recent year for which numbers are available) was $68,703.

If your income is at or below that median, you may be finding it difficult to keep up with your bills or save any money at all, especially if you are on a fixed income. However, it is possible.

How to Pay Your Bills and Even Save Money on a Fixed Income

When you are able to work, you can almost always earn more money. But if you’re on a fixed income, whether it is from Social Security, disability, a pension or some other source, you’re basically taking in the same amount of money each month.

And you may find that that set amount is barely covering your expenses each month, making it impossible to make any headway on your debt or save any money for emergency expenses.

Fortunately, there are some things you can do to try to improve your situation. Let’s walk through them.

Develop a Budget

The first step is to determine exactly where each month’s income is going. You’ll never be able to pay down debt or save if you’re spending every dime you take in.

Though the idea of budgeting can seem intimidating at first, money expert Clark Howard thinks you’ll be glad you did it:

“A lot of people look at being told to do a budget as if their life is being restricted. But the whole idea of budgeting is freeing because you’re getting your life under control, creating more choices and reducing anxiety,” Clark says. “Tracking what you’re spending and then seeing where you can make changes in your life is powerful. This is about giving you power back into your life.”

Being on a fixed income actually makes it easier to create what’s called a “zero-sum budget.”

A zero-sum budget means that you structure your budget so that every dollar has an intended purpose before you get your paycheck. If there’s any money left over after you’ve designated money for all your expenses, you should use it to pay down debt. If you’re debt-free, save that money in an emergency fund, and once your savings grow, move some to a retirement fund.


By having a plan for every dollar before it hits your bank account, you can avoid inadvertently wasting money by spending without a plan.

Start with the CLARK method: This budgeting guide will help you organize your spending and identify the categories that might need a little work.

Get Out and Stay Out of Debt

As mentioned above, any money not going to your living expenses should generally be used to pay down debt. reports that the average interest rate on credit cards is just over 16% as of November 2020. That is far higher than the interest you could expect to earn over the long term in any legitimate investment.

Not only does carrying and accumulating debt mean that you have more in monthly payments to make each month, it means that you’re delaying financial freedom because of the interest you’re paying. By avoiding debt or working to pay off debt quickly, you can put this money into savings instead.

Follow these 6 steps to eliminate credit card debt in three years or less.

Start Saving and Make It Automatic

Once you’ve set up your budget (and are sticking to it) and have paid down your debt, you get to the fun part: saving.

Automating your savings is the best way to save more money, no matter what your income is. And setting up this system shouldn’t take long with the help of your bank. You designate a certain dollar amount to come out of your check every month and move automatically into a savings vehicle.

By automating the process, you never even see the money. That will make it easier to adjust to living on less and start saving money.

Pay off debt and saving money — even on a fixed income and even just a few dollars per check — is possible. Certainly, it will take effort, but once you make some headway, you can begin to save more money each and every month.

More Money Resources From

Welcome bonuses can be a great way to boost the value of a credit card. Best Credit Card Welcome Bonuses for 2022 - If you're in the market for a new credit card in 2022, you may be hoping to cash in on the hundreds of dollars in sign-up bonuses offered to new customers. Welcome bonuses and offers are a marketing tool that…
The best cell phone plans include Tello, Mint Mobile, Visible, T-Mobile, Consumer Cellular and more Best Cell Phone Plans in 2022: The Cheapest Plan for Every Need - Team Clark ranks the best cell phone plans and deals! See our favorites for unlimited data, families and cheap plans starting at $10/month.