Did you know that it is possible to pay off debt even if you are unemployed? If you think that sounds impossible, we assure you, it is not.
Of course, you need to be employed at some point but the thing is, you can keep on paying your credit obligations even if you are in between jobs. You do not have to compromise your payments – but you do need to make certain sacrifices every now and then.
It seems that debt will forever be a part of our society. According to an article published on NewYorkFed.org, the American household debt increased by $117 billion from the third quarter going to the last quarter of 2014. Most of the balances have gone up for a lot of credit types. For mortgage, the increase was $39 billion. For car loans, the increase was $21 billion. For credit card debts, the increase was $20 billion. The balance of student loans continue to increase as it passed the trillion mark.
If we cannot pay off debt, we could be one step away from another financial disaster. That is why we need to make this one of our priorities.
Some people choose to compromise their debt payments because they have a low income. Some of them stop paying their credit because of job loss. Some creditors or lenders will probably help you by allowing you to defer payments. However, not everyone will be allowed to postpone payments, like credit card companies. They will continue to collect from you even if you have given them proof that you are unemployed and thus unable to pay off debt. What can you do to keep your debt from ruining your already difficult financial life?
How a couple got out of debt even with limited financial resources
You can probably get tips from Jackie Beck and her husband when it comes to that. This couple allowed Wisebread.com to publish their experience – how they journeyed from a $147,000 debt to debt freedom.
Now their story begins with Jackie describing their debt situation. Their six-figure debt is a combination of mortgage, student loans, credit card debt, car loans and even a home improvement loan. When she and her husband realized that they no longer want to be in debt, specifically their credit card debt, they made a commitment to pay it off. And Jackie kept that promise even when she became unemployed.
It was noted in the article that in most of their repayment period, either one of Jackie or her husband usually did not have a steady income. The alternated being unemployed, recovering from surgery, paying for huge bills while paying off their debt. So how do you think they did it?
Here are 5 things that they did correctly.
They had a plan and prioritized certain debts.
Given that they had a lot of debts and limited finances, they knew they had to prioritize certain debts. What Jackie did is to apply for deferment so she will be allowed to postpone her payments. After getting approval, she then used her limited financial resources to pay off her credit cards. This was a good move because of all their debts, credit cards have the highest interest rate. Not only that, this debt does not have a prepayment penalty – which means you can pay it off in huge sums and you will not be charged for it. Once the credit card debt was complete, she was free to make huge contributions towards her student loans. It got her out of debt a lot faster.
They used their initial success as motivation.
When her husband saw how Jackie’s efforts paid off, he became motivated to pay of debt that he owed. He concentrated on getting rid of his car loans. You can see that an initial success in paying off debt can be used to fuel your motivation to complete the others.
They lived on practically nothing.
You may be wondering already, how did the couple afford all their payments despite one having no income? They lived a frugal life. Believe it or not, they can live on $1,000 a month. They spent only on the basic necessities. Even if they finished paying off one debt, they were not quick to use that freed amount for luxurious expenses. They used it to make bigger contributions towards their remaining debts.
They made a habit of saving instead of borrowing more money.
While they were in the midst of paying off their debt, the couple made another loan that will allow them to finance their home improvement projects. After getting it, the couple realized that they had become uncomfortable in taking on new debt. They worked so hard to pay off debt that they wanted it over and done with. So everytime they wanted something, like a vacation, they just saved up for it. This soon became a habit that will keep them debt free.
They rewarded themselves.
The last thing that the couple did that was right is to reward themselves. Some people, while they are in the midst of debt relief, fail to budget for entertainment expenses. This makes their journey towards debt freedom very depressing. It sucks out the motivation that they had when they started their debt solution. You should realize that being in debt does not have to be very depressing. Take time to reward yourself and budget the appropriate expenses accordingly. While the couple’s debt and small resources gave them limited options, they concentrated on what mattered most to them. For instance, Jackie wanted to go to Antarctica – and that is what they saved up for. If you feel that what will make you happy is expensive, then just save money before you indulge.
What happens after paying off all your debts
The truth is, it is not easy to pay off debt, especially when you are unemployed. But something that you work hard for will definitely give you a lot of lessons along the way. If you are able to achieve debt freedom, then the habits that you had to form to get where you are will undoubtedly stick to you. But apart from that, here are 3 important things that will happen after you pay off everything that you owe.
- Freedom. When you do not have debt crippling your finances, you are actually free to pursue what you want. The Becks can actually afford not to have a 9-5 job because of two things: they do not have credit obligations and that can manage on a $1,000/month budget. It can be very liberating once you realize that you do not need a lot of money to survive. Apart from that, you will feel less stress – which is one of the best ways to live.
- Empowerment. After going through all the hard work to pay off debt, you will feel like you can overcome just about anything. When Jackie paid off both her credit card and student loan debts, her husband felt that he could do the same. The confidence that you have will definitely take you to places and make you fearless in taking calculated risks in life.
- Opportunities. Getting rid of debt is one way to open opportunities – or be free to accept them. For instance, the Becks no longer feel the need to be tied down by a regular day job. They can grab any opportunity because the need to earn a certain amount each month is gone. And since there is not more debt, all their cash can be used for going on vacations or even investing.
But while being debt free is great, you have to know that eliminating credit completely is not really necessary. You can use credit (e.g. credit cards) and not be in debt. For instance, you can use your credit card and pay for it in full when the billing comes. That will allow you to have a good credit record without putting your financial situation in danger.
There are also instances when debt is a necessary tool that will allow you to improve your personal finances. According to an article published on BBC.com, debt is sometimes used to help achieve a goal. This includes getting an education, your own home or even start your own business. If you know how to manage your debt correctly, then you do not have to worry about it.
Just make sure that you will not let your debt rule over your life. You should only take on as much debt as you can afford to pay off. Otherwise, you might end up living from paycheck to paycheck because your debt payments are eating up most of your income.
A lot of consumers who are buried in debt usually live from paycheck to paycheck. It is a brutal cycle that you need to get out of. If you find yourself in this position, you know that you need to stop living this way. Here is a video that discusses different tips that other consumers did to get out of this financial situation.