Paying Off Debt with Low-Income (Consolidation, Settlement)

Paying off credit card and other debts when you have a low-income is very difficult but possible. You may be broke with little money coming in to retire existing obligations, but you always have options.

Debt consolidation loans offer the chance to reduce monthly payments for individuals living paycheck-to-paycheck. Use the extra cash to pay down balances more quickly on your smallest remaining obligation.

Debt relief programs attempt to negotiate a settlement where you pay less than what you owe after funding an escrow account. People with weak earnings can find the resources by stopping payment to creditors, which establishes financial hardship at the same time.

The other alternatives are less creative: setting a budget, taking a side job, cutting expenses, etc.

Paying Off Debt With Low-Income

The idea of paying off debt fast with a low-income is not realistic unless you owe a tiny amount. However, most people in this situation are not asking this question. You may be broke or living paycheck-to-paycheck with little money in savings and large amounts of unpaid obligations.

Having large amounts of debt when you have little money coming in gets expensive quickly. Late fees and interest charges accumulate quickly. Therefore, you need to plan to escape this downward spiral before it is too late.

Debt Relief

Do you qualify for debt relief? (Sponsored Link) Low-income families may be eligible to pay off their credit cards and other obligations for less than the full amount. Your ability to fund an escrow account is the most important criterion along with these other factors.

Debt relief companies can negotiate a settlement on your behalf (payoff for less than what you owe) provided you have sufficient funds set aside in an escrow account, and you show signs of financial hardship (behind on payments).

Most people meet both criteria by stopping payment to creditors and redirecting these resources to the escrow account. You settle as quickly as you fund the escrow. In this way, the debt relief company can make a compelling offer of immediate payment for part of the balance owed.

Grant Money

Finding grant money to pay off the credit card and other debts fast will be very difficult. Plus, your search could lead you toward fraudulent outfits looking to take advantage of families dealing with financial hardship. Grants are free money from that you do not have to pay back. Free money is always very appealing – hence the lure to sham operators.

The federal government does not provide grants to individuals. Instead, the grant money flows to universities, state agencies, and non-profit organizations to fund ideas and projects to foster a public service or stimulate the economy.

Therefore, be wary of any company or website promising that they have the secret to finding free money that you do not have to pay back. There is always a catch. Beware of any company asking for money upfront.

You must look locally for this help and always do your homework.

Creative Options

The creative ways to pay off credit card and other debts fast when you are broke are not original at all. In fact, the options are quite dull and mundane and probably not what you want to hear – and take a long time. The bottom line is that discipline, and positive cash flow is far more important than creativity.

  • Establish a repayment budget and stick to it long-term
  • Pay off the smallest debt first (snowball method)
  • Find a side job to boost earnings above subsistence levels
  • Tap into state-based benefit programs to save money
  • Cut all unnecessary expenses and live frugally
  • Take your unused clothing and items to a consignment shop

Low-Income Debt Consolidation Loans

Low-income consumers have fewer options for debt consolidation loans because their earnings often do not support the projected monthly payments. Lenders often consider salary and employment history when evaluating an application.

Also, a bad credit history follows people working in low-wage jobs. These positions are the first cut anytime the economy takes a nosedive, or the employer runs into financial difficulty. A bout with unemployment makes it impossible to stay current on bills when you lived paycheck-to-paycheck while still on the job.

This one-two combination makes it more difficult, but not impossible, to find a willing lender.

Consolidation Loans

Request a debt consolidation loan here. (Sponsored Link) A consolidation loan offers low-income earners the opportunity to reduce their monthly payment. Smaller monthly payments give someone living paycheck-to-paycheck a little more breathing room each time the bills come due.

However, consolidation loans do not reduce what you owe. In fact, they often increase your borrowing costs over time by extending the repayment period. The interest has more time to accrue when you hold on to the lender’s money longer.

Keep in mind that your proposed debt-to-income (DTI) ratio must fall within acceptable ranges. Meeting the DTI requirements will be challenging when you have little money coming in each month.

DTI = Monthly debt service payments/monthly earnings

Also, your credit score will need to meet lender standards (above 650 in many cases) and the presence of collection accounts on your consumer report could hurt your qualifications.

Free Government Programs

Do not count on free government debt consolidation programs to solve your problems. Low-income families can turn to the federal or state agencies for a host of welfare and entitlement benefits. These benefits can provide resources for food, shelter, healthcare, childcare, job training, and other everyday living needs.

However, the federal government does not approve or offer any debt consolidation programs. Families living below the poverty level will have to turn to the private sector for solutions to this problem.

On the other hand, student loan debt is the one area where the Department of Education does help individuals with little money coming in from employment. Graduates have several ways to reduce their monthly payments via deferment, forbearance, forgiveness, or income-based repayment schedules. Contact your loan servicing company for details.