Debt consolidation seems like a very difficult task if you are living from paycheck to paycheck. This is a type of financial situation wherein your income is just enough to cover your monthly expenses. You do not have any extra money left over after all your financial obligations are paid off. You find yourself running out of money a few days before your paycheck. This can be a very stressful financial position because you do not have the extra money to cover any unexpected expense.
After the recent government shutdown, it was revealed that a lot of Americans are in this financial situation. In one survey, 78% of American workers admitted to living from paycheck to paycheck. Of the people earning between $50,000 to $99,999 a year, 28% are barely getting by. In fact, 7 out of 10 of them are in debt.
The combination of debt and living from paycheck to paycheck seems like a very difficult situation to be in. How can you afford to pay off your debts if you are hardly getting by? Well, debt consolidation can surely make things better when it comes to your debt payments. It will allow you to focus on other things because your debt repayment plan is more simple. Among the things that you should look into is how you can improve your financial situation so you are no longer living from paycheck to paycheck.
Tips to succeed in debt consolidation despite limited finances
What is great about using debt consolidation is that it requires little effort to monitor and manage. This will give you the opportunity to work on a couple of things that will hopefully have a positive effect on your finances. Obviously, if your income is barely enough to cover your expenses, there is something wrong with how you manage your finances. Do not make the mistake of thinking that all you need is a higher income to get by. It will help, that is true. However, it is not a solution.
According to reports, 1 out of 10 workers who earn a 6-figure income is living from paycheck to paycheck. This means it is not about how much you are earning. It is more about how you decide to use your income.
To ensure that you are improving your financial situation while using debt consolidation, here are the things you need to look into so you can succeed are your debt relief efforts.
If you really want to get better at handling your finances, you need to start by looking at your current budget plan. You need to check both your income and expenses to find out why you are in this financial situation. Are you spending too much? Or maybe you are earning too little? Maybe your budget plan is no longer aligned with your current financial position. You need to change that and give your plan an update. List all your expenses and compare it with your income. If you find that your expenses exceed your income, you know that something has to change.
As you look into your budget plan, it is important for you to focus your attention on your spending. Your limited resources should prompt you to be careful with how you spend it. You need to list all your expenses and rank them according to priority. This will make it easier for you to identify the expenses that you can cut back on.
The goal here is not just to lower your spending but also to be smarter with your choices. It is the fastest way you can get extra money so you no longer have to live from paycheck to paycheck. You should also know that smart spending is one of the ways that you can guarantee success when it comes to debt consolidation.
Increase your income
If you have exhausted all your efforts to lower your spending and you are still struggling with debt consolidation, you might want to consider increasing your income. Lowering your expenses can only do so much. This can limit the improvement that your finances need to go through in order to stop living from paycheck to paycheck. Earning more will make it easier for you to build your personal net worth while you are paying off your debts. It will also help you achieve financial security a lot faster.
Stop using debt
Apparently, it is not just hard for us to keep on borrowing money. When we are in a tough and unexpected situation it can also drive us to borrow more money. A published report revealed that 4 out of 10 adults will borrow money in order to get out of an emergency expense. This is a bad idea when you are in the midst of a debt consolidation program. You have to try and avoid being put in this situation. You have to exert self-control so you will not use credit cards unnecessarily. If you cannot afford to pay for something in cash, do not spend.
It is also a good idea to have an emergency fund. That way, you do not have to resort to debt for every unexpected event that will happen in your life. You have this reserve fund to tap into if you need to pay for something important that is not in your budget.
Make sure you have the right debt consolidation strategy
Apart from trying to improve your financial situation, you should also make sure that you are using the right debt consolidation strategy. Having the wrong debt solution will still make the debt relief journey difficult and stressful. It will be hard for you to take care of the various aspects of your financial life so you can stop living from paycheck to paycheck.
There are two things that you need to ask yourself while choosing among the different debt consolidation options.
How much can you afford
First of all, you need to be honest about how much you can afford. Consolidating debts will not reduce the principal amount that you owe. You can save by lowering the interest rates but nothing will be done for the original debt that you borrowed. You have to pay it all back. If you think that downsizing your lifestyle will still make it impossible to afford to pay off your debts, then you might need a debt reduction.
What is your current credit score
You also have to consider your current credit score situation. If it is high, you can opt to borrow a loan or open a new credit card account to consolidate debt. A good credit score will help you get a low-interest rate which in turn will help you save money. However, if you have a bad score, you might want to opt for debt management instead. Both these options will consolidate debt but the effect will depend on what your credit score is.