Is it possible for you to get out of debt even when you are broke? It seems like a very difficult task to overcome but if you know the right strategies to use, it is not an impossible feat to accomplish.
But what exactly does it mean to be broke?
This is a financial situation that is worse than living from paycheck to paycheck. When you are living from one paycheck to the other, you can still afford all your expenses. It only means you do not have any extra money. If something unexpected happens, there is a high chance that you will be forced to borrow money to accommodate the expense associated with it.
But when you are broke, that means you cannot afford your current monthly expenses. Basically, you are spending more than what you earn. Anything that your income cannot over is paid through credit – something that can really blow up in your face in the future.
If the latter scenario is something that you can relate to – well, you are not alone. According to one survey, 48% of their respondents admitted that they spend more than what they make each month. That is almost half that is probably financially broke – or at least, they are on their way to.
Obviously, you cannot stay in this financial situation for a long time. You need to do something to turn your financial situation around. If not, you will end up declaring bankruptcy.
Tips to get out of debt if you are financially broke
Fortunately for you, there is hope for your financial situation. You can get out of debt as long as you follow these tips.
Take a look at your budget
If you do not have a budget, that might be the reason why you are currently broke. But even if you do have one, the fact that you are broke is an indication that you are following the wrong budget. Sometimes, we create a budget plan that suits our financial situation – but you have to realize that our lives change over time. That means our financial needs and priorities also change. When that happens, you need to make sure that your budget plan changes along with it. Once you have revised your budget, make sure you prioritize your debt payments so you can get out of debt.
See if you are just overspending
When you look at your budget, try to see if you are really broke or if you are just overspending. Running out of cash feels like you are broke. But if you scrutinize your expenses carefully, you might just be spending too much unnecessarily. One study revealed that 6 out of 10 Americans have credit card debt because they spent too much on unnecessary things. Eliminate these unnecessary expenses and see if you can already meet your basic needs.
Come up with an affordable repayment plan
Another thing that you can do to get out of debt is to create a repayment plan that you can afford. After looking at your budget and eliminating the unnecessary expenses, it is time to determine how much you can afford to pay. Analyze your budget to determine how much you can use on your debt payments. Make sure this is a comfortable amount that you can stick to. If you set a high amount that will compromise your basic necessities, you might find it hard to stick to the amount. Just be realistic with what you can afford.
Negotiate with your creditors
Once you have an idea about the amount that you can afford, you can now go to your creditors and lenders to negotiate. Some people are scared of talking to these people because they feel intimidated. But you have to realize that your creditors would rather negotiate with you about your debts if it means you will pay them back. Do not just turn your back on them and stop paying off your debts. You might be able to work out a repayment plan that you can afford and it acceptable to them. They would rather receive a smaller monthly payment instead of having you declare bankruptcy. The latter would increase the chances that they will not get anything from you.
Once you have reached an agreement, make sure that you will stick to this repayment plan. Do not agree to anything unless you know that you can really afford to pay it back.
Stop borrowing money
While you are trying to get out of debt slowly but surely, you need to stop borrowing money. This is only temporary until you have put all your debts under control. This probably means you should pay off a significant amount of your debts. Or if you can manage, do not use credit unless you have completely paid off what you currently owe.
Once you have paid your debts, you can start borrowing again – but make sure that this time, you will be smarter about it. There is nothing wrong about using debt. You just have to know how to use it properly.
Increase your debt payments
While you are still paying off your debt, you need to consistently try to increase your debt payments. There are two ways for you to do this.
The first option is to cut back on expenses. As mentioned, your unnecessary expenses should stop immediately. If you do not need it, do not spend on it. This will help you develop the right spending habits that will allow you to maximize your limited resources. If you master this habit, you will never go broke again. You will learn how to spend only what you can afford.
Another thing that you can do is to try to increase your income. Ask for a raise or get a second job. This will help you recover from your financial status of being broke. You can also sell off some of your stuff. Anything that you no longer need can be sold off. This can be added to your debt payments to help you get out of debt faster. It will also help declutter your home and allow you to organize your possessions.
Get professional help
If you think that you cannot get out of debt because you are broke, do not lose hope. You can get help from a professional. There are debt experts like credit counselors that can provide you with advice on how to succeed at achieving debt freedom even with limited financial resources. They do not have to cost money. There are credit counseling agencies that you can go to. These are non-profit organizations that can help you with your debt situation.
How to keep debt from making you go broke
While debt is the main reason why people end up broke, there are ways for you to use it without having to give it up entirely. All it takes is learning how to manage your finances well.
Do not think that you are in this dire financial situation because you do not earn enough. The truth is, being broke can happen to anyone. One article revealed that some young professionals earn 6-figure incomes and are still struggling with huge amounts of debt. The problem is not the amount you earn. The real issue is the way consumers use their money. In the same way, debt is not to blame if you are broke right now. The reason why you are broke is that you failed to manage your money and use of credit wisely.
If you want to keep yourself from being broke because of debt, here are some tips that you can implement in your life.
Plan every credit expense
Before you use credit, make sure that it is a planned expense. That way, you can check your budget to determine if you can really afford it or not. Some people use credit because they want to earn points. Or maybe, they want to buy something very expensive. Make sure you plan the expense so you can anticipate the payments. That is how you can be prepared to pay off your debt on time.
Be wary of high-interest rates
Borrowing money wisely means you have to make sure you get the lowest interest rate on your debts. This will help you save money as you pay off the debt. It will lower the amount that you have to pay on top of the principal debt that you borrowed. This will keep it from becoming too hard to pay off.
Since credit card interest rates are notorious for being very high, you might want to make sure that you can pay your balance in full within the grace period. This means you need to pay the full amount when the billing statement comes. This will only make you pay the principal amount since the finance charge is only added to balances carried over to the next billing cycle.
Give your emergency fund a boost
If you really want to improve your financial situation after you get out of debt, you need to build an emergency fund. This will really help keep you from borrowing money. If something unexpected happens, you have the funds to help you cover the expense. This will help lengthen the effects of your debt freedom and make it more secure.