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How Reducing Debt Payments Can Increase Cash Flow

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In business, it’s often said that cash flow keeps the doors open. Businesses need cash, however they get it, to pay the bills. Once the cash flow stops, companies go bankrupt.

The same is often true with individuals. Without cash, bills go unpaid, necessities can’t be purchased, and extras and indulgences don’t even figure into the picture.

It’s an important issue as month-to-month household income and spending fluctuate more than ever. More people are navigating the so-called “gig economy,” picking up extra work or cultivating a “side hustle” to supplement their primary income. A new study found that 41% of households are experiencing at least 30% variation in income month-to-month. 60% of households are experiencing a 30% variation in spending each month.

This puts huge stress on monthly cash flow and can make it difficult to create and adhere to a monthly budget.

Life’s Changing Circumstances

Life is unpredictable. (That’s obvious, right?) Sometimes people stumble over unexpected expenses and find themselves facing an intimidating stack of bills. Unfortunately, this happens to a lot of people. Financial struggle is about far more than poor spending decisions; debt problems often surface after a collision of bad circumstances and limited options.

However difficult situations arise, it’s critical to figure out how you can maintain cash flow.

You’ll often hear and read about the importance of keeping a budget. A family budget is really about cash flow – how to find the cash you need to buy the things you need.

When things change in life it requires an evaluation of your cash flow situation.

How To Increase Cash Flow

Your first option is to reduce expenses. When you’re spending less, you’re maintaining more of your cash flow balance. When a situation arises like a lost job or medical expense, you need to find money to replace the diminished cash flow. Cutting back on low-priority expenses is a good place to start. This usually involves eliminating cable, cutting back on the phone bill and other similar expenses. Do you really need Netflix, HBO Now, and Hulu+? Do you actually watch all 3000 channels? Probably not.

The second option is to increase income. This seems like a great idea, but it’s obviously not that simple. There are only so many opportunities and only so many hours in the day to work. However, it’s good to assess your situation and figure out if there is an opportunity to increase your income. How do you spend your free time? Is there an opportunity for you to monetize a hobby?

Reducing Debt Payments To Increase Cash Flow

The first option above also includes revisiting some of the expenses you can’t cut and finding ways to create a better fit with your current financial situation. That might include looking at your mortgage and figuring out a way to lessen your monthly payment. That usually includes extending the loan and paying more in interest in the long-term, but it can provide short-term benefit to increase your monthly cash flow.

You can often do the same with other debts like a car loans, student loans, and others. It’s not always possible, but creditors will often look for ways to get as much money as they can, even if they won’t see a 100% recovery on their initial loan. They know that if you don’t have the cash flow now, they get nothing at all. Some creditors will try to get what they can now, hoping that they can get more in the long-term.

Debt Settlement

You can also look into debt reduction through debt settlement.

Debt settlement is different from debt consolidation. Debt settlement is about negotiating with creditors to lessen the amount of the principal owed.

Again, creditors know that circumstances change. They know that some people struggle with cash flow and that there is a chance that they could face a bankruptcy situation unless they work something out.

If you’re in a tough cash flow situation, debt settlement can be an option. It’s a great way to reduce the balance on some accounts while also decreasing the monthly payment amount,

increasing your cash flow each month so you’re less stressed and can meet other important obligations without sacrificing your financial future.

For more information on debt settlement and how it can impact you, please visit our complete overview.

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