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Getting out of debt is hard for everyone, but when you’re broke, it can feel impossible. Living from paycheck to paycheck is stressful. Add high-interest debt to the mix, and you’ll find yourself in a vicious cycle. Trying to pay off debt when you are broke can lead to missed bill payments, overdraft fees, poor credit, and limited opportunities. 

Figuring out if the problem is the amount of money coming in OR the amount of money going out will help you decide how to take back control of your finances.

Are you really broke or just overextended?

What does it mean to be broke? We often describe ourselves as “broke” when we run out of money just trying to pay for essentials. However, if you have more than enough money to pay for necessities but still run out of money between paychecks every month, it may mean you are overextended. 

BrokeOverextended
Not enough income to cover the bare minimum
Focus on ways to reduce essential spending 
Look for opportunities to increase your income to make sure the basics are covered
You exceed your income through non-essential spending
Focus on ways to reduce non-essential spending
Look for opportunities to increase your income to accommodate your lifestyle 

So, are you broke or overextended? If you aren’t sure, it’s time to press pause on your spending and examine your budget. Taking a close look at your spending habits is one of seven ways to begin paying off debt when you are broke. Check out the rest below. 

1. Take Control Of Your Spending

If your debt is out of control, the first thing you need to do is stop adding to it. That means stop using your credit card and don’t take on any new unsecured debts until what you have is under control. 

2. Create A Budget

Budgeting is simple math—money in and money out. For your budget to work, you need to have more money coming in than you have coming out. Simple right? Well, in theory, it is. We know it can be more complex in practice, which is why you should be kind to yourself when tackling your budget. 

Focus on the big picture and categorize expenses as essential or non-essential before dividing them into more specific categories. Try using our budgeting worksheet to get started. If traditional budgets aren’t your thing, don’t give up here! While old-school budgeting methods are tried and true, they aren’t the only way. 

An anti-budget approach can be great for people who have failed at traditional budgeting in the past or simply want to try a new approach. 

3. Cut Unnecessary Spending

According to a survey by OnePoll the average American spends $1,497 a month ($18,000 a year) on non-essential spending. Non-essentials can include restaurant meals, takeout, impulse buys, clothing and accessories, entertainment, alcohol, subscriptions, paid apps, personal grooming, and more. 

Be honest with yourself, but be realistic about what you decide to cut. Budget cuts shouldn’t be aspirational, they need to be achievable! Remember, non-essential spending may show up in essential categories such as groceries or household products. If you typically go for brand-name products, try swapping out more cost-efficient alternatives for a few months.   

4. Increase Your Income With A Side Hustle

Side hustles are empowering. They allow you to earn extra money on your own terms. Using what you make to help pay down debt is a great way to control your financial future. However, earning more money through a side hustle can sometimes highlight poor spending habits.

If a side hustle isn’t right for you, and you are still overextended, it might be time to change jobs or find a career with more earning potential. Determine how much money you need to make to manage your expenses and research jobs in your field that will meet your needs. 

Getting out of debt often involves a lifestyle change, and deciding to make a career shift may seem extreme, but it can open up a world of possibilities. 

5. Negotiate With Your Lender For A Lower Interest Rate

Whether you are broke or not, talking to your lenders to negotiate better terms is always a good idea. However, you should do it the right way. Simply asking for a lower interest rate may not be the best approach. Instead, do your research and come prepared with information.

You can improve your chances of getting a lower interest rate when:

  • Your lender’s competitors are offering a lower rate to new customers
  • Your lender is offering a lower rate to new customers
  • Your credit score has improved 
  • Your income has increased
  • You have a long history of on-time payments

6. Choose A Debt Repayment Strategy

One of the biggest misconceptions about debt repayment is that making minimum payments is all you need to do. While it’s okay to make minimum payments sometimes, it’s the longest and most expensive way to pay off your debt. 

Instead, you need to pay more than the minimum so that more of your money goes toward the principal balance. If you have multiple debts, you may be wondering which one to pay first. Two common debt repayment strategies include the snowball and avalanche methods

The Snowball Method: Rank your debts by balance and pay off the smallest amounts first. 

The Avalanche Method: Rank your debts by interest rate and pay off the high-interest rate debts first.

7. Seek Out Debt Consolidation Options

Sometimes, despite our best efforts, debt becomes unmanageable. Luckily, debt consolidation options are out there to help you tackle the problem.

A debt consolidation loan allows you to pay off several debts at once and repay them with one monthly payment. A good debt consolidation loan will have a lower interest rate than you were paying on your debts. Consolidation loans may have longer repayment terms, which can lower your monthly payment to a more manageable amount. 

In most cases, people who choose other consolidation options typically pay off their debts in 24 to 48 months. For example, Accredited Debt Relief helps clients get monthly savings with a plan that lessens the burden of their debt.

Imagine Yourself in a Brighter Financial Future

All too often, we allow ourselves to get comfortable with where we are in life, including our struggles. We resign ourselves to the idea that living paycheck to paycheck is just how it is. Yet, it doesn’t have to be. Rather than ignoring your debt and letting it slowly balloon out of control, you can take charge of it and start building a bright financial future. 
For more tips on how to take control of your finances, check out the Top Dollar blog. If you are ready to find a solution, contact a Consolidation Specialist for a free quote and find out which debt consolidation method is right for you.

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