Is it possible to consolidate debt while you are broke? Some people think that it is better to ignore their debts if they are short on cash. It is the first thing that they remove from the list because they feel like it is not a necessity.
It is true that debt is not as important as food, shelter, and other basic necessities that are vital for you to survive. However, if you ignore, it can do more damage in your life. It is never wise to ignore debt regardless of your financial situation. You need to to make a decision on what to do about it – even if it is something as severe are declaring bankruptcy.
But before you file for bankruptcy, you might want to step back a little to analyze your current financial situation first. You need to figure out if you are really broke or you are just overspending. It is easy to mix the two.
With the cost of living rising higher than the wages, it is not surprising that a lot of Americans are feeling broke. But if that feeling will cause you to ignore your debts, you have to reconsider if you are really broke or not. If you are feeling “broke” after you have spent your money on monthly expenses, you might be in a better financial position than you thought. It is possible that you are just overspending your money. If this is the case, you can still afford to pay off your debts and still survive comfortably. You just have to analyze how you spend your money.
Steps to consolidate debt when short on cash
If you are short on cash but you want to deal with your credit obligations, you can opt to consolidate debt instead. Here are the steps that you can follow to get started on this debt solution.
Create a new budget plan
Obviously, your old plan did not work. If your budget plan was working well, you will not be in this situation. You would not have accumulated a lot of debt because you would be aware of how much you can afford each month. Overspending will be unlikely to happen. But since you landed in debt, that means your budget plan is not working. Create a new one and make it a bare-basic budget plan. This will help you achieve debt relief faster. You will only focus on the basic necessities so you can use the rest to get yourself out of debt.
Calculate how much debt payments you can afford
Once you have created a new budget plan, you need to focus on how much you can set aside for your debt payments. Look at your expenses and see where you can save money. Since you created a bare-basic budget plan, you should be able to determine the funds to use when you consolidate debt. This is an important piece of information that will help you identify the debt solution that you can use to achieve debt freedom.
Choose a debt consolidation strategy
Based on your debt payment fund, you can now figure out the best way to consolidate debt. The great thing about debt consolidation is that you can restructure your debt payments. You can choose to lower your monthly payments so it will not feel so restricted. While there will be no debt reduction, you can get a new credit account that has a lower interest rate and lower monthly payment requirement. This should make it easier to keep up with your payments so you can slowly but surely get out of debt.
Stop using debt
Admittedly, this might be hard to do for most Americans. According to statistics, debt has become a major burden for a lot of Americans. 7 out of 10 have credit card debts. While a lot of them are actively making an effort to lower their debts, it is still very tempting to keep on using it. But if you really want to achieve debt freedom, you have to learn how to curb that feeling. You should stop adding debt to your balance because it will make your efforts harder.
Find ways to increase your income
If you really feel like you are broke, one way to solve that is to increase your monthly cash flow. This can be done in many ways. You can go to your employer to ask for a raise. Or you can ask for extra hours at work to earn more. You can also set up a passive source of income. Going online to look for a side gig is also a popular option. There are so many options available to increase your income. With what you are earning, you can use it to pay for your dues after you consolidate debt.
What to do if you are really broke?
Of course, the above-mentioned steps will only work if you are not really broke and just overspending. But if you are really broke, what can you do? There is still a way for you to survive your debts despite your current financial situation.
Definitely, debt consolidation is not for you. What you need is something that will reduce your balance. To do that, you need to consider doing the following tips.
Talk to your creditors
First of all, you need to speak with your creditors – and lenders if you have loans too. You want to tell them about your current financial situation. Assure them that you are willing to pay your dues but your current finances may not be able to afford to pay for everything. If you are truthful and sincere, they should be able to appreciate your initiative to do something about your debts. Other people will probably just run away from their debts. Approach them with an idea of how much you can afford to pay your debts. You can work on a repayment plan from there.
Opt to settle debts
If you cannot consolidate debt because you need a debt reduction, you should opt to settle them instead. This is something that you can discuss with your creditors and lenders. Debt settlement is the best way to avoid bankruptcy if you really do not have enough funds to pay for all your debts. This involves negotiating your debts so they will allow you to pay only a portion of what you owe. Whatever will not be paid will be forgiven. See if you can talk to your creditors to see if you can arrange this for your credit accounts.