Most loans have terms up to 48 to 60 months, depending on the lender you choose. If you need lower your monthly payments, you may be able to extend the term of a debt consolidation loan.
The biggest issue with a consolidation loan is that it puts the responsibility solely on the borrower. You have to manage your budget and make timely loan payments, which can be challenging, especially for those with a history of overspending. The freedom to spend can lead borrowers to accumulate more debt, even with a consolidation loan.
This is where Solution 2 comes in.
Solution 2: Debt Management Program (DMP)
A DMP will guide you toward debt relief, no matter what your budget is.
In a debt management program, a certified credit counselor will guide you through the process of paying off all of your debt in full. They will find a monthly payment you can afford on your budget and negotiate with your creditors on your behalf to lower your interest rates. Once all of the creditors agree to the plan, you will start making one monthly payment to the credit counseling agency. A debt management program is NOT a loan. It’s more like a professionally assisted repayment plan.
Before starting a debt management program, know the pros and cons. There are a few downsides to a DMP. First, it closes your credit card accounts when you join the program. This is to help you stop charging on those accounts. It can, however, be difficult to function without your main lines of credit. Also, a debt management program costs more and will take longer to complete than debt settlement.
This leads us to the positive aspects of a DMP. Though it’s more expensive and takes longer, a debt management program is much better for your credit than debt settlement. Additionally, your monthly payments may be lower. You’ll be put on a strict budget and monthly payments will come out of your bank account automatically. Future penalties and fees are no longer a problem, and interest charges are either reduced or eliminated altogether. For someone living paycheck to paycheck, a DMP is often the best option to get out of debt.
Tips for Getting Out of Debt When You’re Living Paycheck to Paycheck
Low on cash? There are still things you can do to make it easier to get out of debt. Take a look at these tips to supplement the solution you chose.
Tip #1: Don’t wait.
The worst thing you can do for your debt when you’re living paycheck to paycheck is to wait to act on it. Interest charges will only continue to stack up the longer you put it off. Decide which solution is best for you as soon as you can.
Tip #2: Pay close attention to your budget.
Tracking your spending is an essential part of getting out of debt, no matter which method you end up using. A good budget will keep you on track and ensure you pay off your debt on time without wasting money on unnecessary expenses.
Tip #3: Increase your income.
If possible, add some extra money to your monthly budget with a side gig or other form of extra income. In addition to the extra cash you will have on hand from your lowered monthly payments, this can help boost your emergency savings fund.
Tip #4: Start an emergency fund – even if it’s just pennies.
Taking care of your debt is your most important budgetary item, but if you run into an emergency and don’t have any savings, your debt will pile up even higher. This is why it’s important to always have a little extra cash saved on the side for the unexpected. Even if it’s just a couple bucks here and there, start contributing to an emergency fund.
Tip #5: Be patient.
Becoming debt free won’t happen overnight. Don’t quit a debt management program too soon, as you will still owe everything you did before. If you bail on a consolidation loan, it will be even worse.
