Do you think it is possible to consolidate debt effectively despite having a limited budget? For some people, this might seem like an impossible feat. But believe it or not, it is possible to get out of debt even if you have limited financial resources.
According to reports, almost 8 out of 10 US workers are currently living from paycheck to paycheck. More surprisingly, 1 out of 10 who earn more than $100,000 is also in the same predicament. With 3 out of 4 workers admitting to having debt, it is not hard to conclude that Americans are in a huge amount of financial trouble. It seems like there are a lot more people trying to pay off debt with limited finances than we thought.
Fortunately, there are debt relief options that can effectively solve your debt situation even if your budget is quite tight. One of them is debt consolidation. Not only will it help you get out of debt, but it can also help you rebuild your financial position. If you can implement it correctly, it is even possible for you to save money even with the limited money that you have.
How to consolidate debt effectively with a limited budget?
So how can you consolidate debt effectively if your finances feel very limited? Here are a couple of tips that might be useful to you.
Create a frugal budget
If you have limited finances, it might be a good idea to create a frugal budget while you are still paying off your debts. This is a type of budget that will only focus on what is important. There will be no unnecessary expenses. You need a budget plan that will help organize your finances because it will show your income and expenses. To be smart about your finances, you need to have a budget plan that supports your debt consolidation program. When your budget is aligned with your debt relief efforts, there is a higher chance of getting out of debt completely and successfully. Since you have limited finances, your budget plan will ensure that your monthly debt payments are funded. A frugal budget is the best way to meet your basic needs without compromising your debt payments.
Set up a low monthly repayment plan
To consolidate debt effectively, it is sometimes necessary to get a lower monthly repayment plan. This will ease the strain on your budget. It will make it easier for you to cover all the expenses that you need. Fortunately for you, debt consolidation will give you the opportunity to restructure your repayment plan. If your limited finances need a lower monthly payment, you can look for a loan that will give you that. You just have to get a longer repayment plan so this becomes possible.
Negotiate for a lower interest rate
Since you are restructuring your repayment plan, you might want to negotiate for a lower interest rate while you are at it. When you have a limited budget, any savings that you can get will really help a lot. Having a low-interest debt consolidation loan would mean a lot of savings if you are consolidating high-interest credit card debts. It would mean having a bigger part of your payments go to the principal balance. This can also cause your monthly payments to go down. So you have to do your best to get the lowest rate you can.
Why aim for debt consolidation despite a limited budget
You might be wondering – if you have a limited budget, wouldn’t it make more sense to opt for a debt reduction instead? It does make sense but there are two important reasons why you are better off consolidating debts instead.
If you are not in a financial crisis
When you are living from paycheck to paycheck, it feels like you are broke. And this is a feeling that a lot of Americans are struggling with. Reports reveal that despite an increase in salary, a lot of people still feel broke because of the rising cost of living. However, if only some of these people take a closer look at their finances, they will find out that they are not really in a financial crisis. They are merely overspending. If you take a look at all your expenses, you will know if you are really broke or you are just overspending. If it is the latter, then your problem can be solved easily. You can just cut back on some expenses so you can afford to pay more towards your debts. You do not have to opt for a debt reduction.
If you need a good credit score
Another reason why you should aim to consolidate debt effectively instead of debt reduction is to have a good credit score. One of the drawbacks of debt reduction is usually a bad score or a negative entry in your credit report. If you have plans to get another loan as soon as you achieve debt freedom (e.g. mortgage or car loan), it will be harder to get a low interest on that debt. So if you can take care of your credit score and you are not in a financial crisis anyway, then it is best to just consolidate your debts. It is just as effective in getting you out of debt anyway.