How to Financially Recover After an MLM

MLM and Debt

Most people join MLMs to make money, whether as a side hustle or a new career path, but the vast majority end up losing it. According to the Federal Trade Commission (FTC)-endorsed book "The Case (for and) Against Multilevel Marketing," 99% of consultants end up losing money. The structure of MLMs may be a contributing factor.

Participants typically buy the products they plan to sell directly from the MLM organization. These products can be pricey, with some start-up kits costing up to $10,000. If they can't afford to pay cash, some may take out loans, borrow from friends or family or even tap retirement savings to start their venture. There may be additional ongoing costs, and if they're not successful in their venture, participants may find themselves in debt and unsure how to recover.

Financially recovering from an MLM can be challenging depending on how much money you may have lost or how much debt you incurred. The following strategies can help you plan your course when your MLM venture doesn't go as planned.

How to Get Your Finances Back on Track

Step one in almost any financial recovery plan is to get a budget down on paper. If you already have a budget, you may need to revise it to make room for paying off debt or replenishing savings that may have been depleted by MLM costs.

If you're creating a budget for the first time, there are many different types of budgets to choose from and budgeting apps that can help you get started. One simple way to start is to write down all your expenses and all your income and see if these numbers align.

They may not. If your expenses—including things like loan payments or credit card bills resulting from your MLM efforts—exceed your income, you'll have to do more than just create or fine-tune your budget to recover. You may need to increase your income, reduce your expenses or do both.

How to Increase Your Income

Some ways to increase your income include:

• Ask for a raise. If you already have a day job, asking for a raise can help as you try to tackle debt. A good time to ask for a raise is after a positive performance review. Before you approach your boss, research salary ranges for your line of work to get an idea of how much to request.
• Get a side hustle. Side hustles and gig work offer a flexible way to earn extra income without the pitfalls of an MLM. Driving for a ride-hailing service, using your skills to freelance, tutoring and more can help provide extra income.
• Look for a new job. Seeking new employment may be the best option for financial recovery if you can land a job with higher pay than your previous work. As remote work becomes more popular in the workforce, you may find work that gives you the flexibility you may have been seeking when you started your MLM venture.

How to Reduce Your Expenses

Ways to reduce your expenses include:

• Cook more at home. It may sound cliche, but restaurant meals, prepared foods and takeout add up quickly. Cooking more at home can help you save.
• Cancel subscriptions. Consider canceling or taking a break from entertainment subscriptions while you work to pay off MLM debt.
• Get a roommate. Splitting rental costs with a roommate can help you reduce your housing expenses by half.

Besides improving your cash flow, you'll also need to think about reducing your debt quickly and effectively. You may not be able to pay it off all at once, but instead, make strategic choices that will save you the most in the long run. Start tackling your debt with methods such as:

• Debt avalanche method: The debt avalanche method has you pay off the credit card or loan with the highest interest rate first, then move on to the account with the next-highest rate, and so on. Putting extra money toward your high-interest accounts first while paying the minimum balances on other accounts can save you money on interest in the long run.
• Debt snowball method: With the debt snowball method, you'll tackle the debt with the smallest balance first, then move on to the one with the next-lowest balance while making minimum payments on your other accounts. While the avalanche method may save you more in interest, debt snowball can help you gain momentum and maintain motivation as you pay off your bills.
• Balance transfer credit card: Balance transfer cards allow you to transfer other high-interest credit card balances to the new card with a low or 0% introductory interest rate. Your intro offer may last 12 to 18 months or even longer, giving you time to pay off your debt without accruing more interest. The key is to pay off the balance before the card's standard rate kicks in. You typically need good credit or better to be approved for a balance transfer credit card.
• Personal loan: To save on credit card interest, consider taking out a personal loan at a lower interest rate. Personal loans offer fixed payments over a set time period (often two to five years), which could help you more easily manage payments.

While you are paying down your MLM debt, make sure you replenish or create an emergency fund for unexpected expenses. Start by setting aside however much you can afford, with the goal of eventually saving three to six months' worth of expenses. An emergency fund can help you avoid going into debt when a surprise cost like a car repair or medical bill arises.

What if You Can't Afford Your Bills?

Even with the best of intentions to get your finances back on track, you may still find the financial distress caused by joining an MLM overwhelming. If you think you may be late on any upcoming credit card or loan payments—or unable to make them at all—contact your lender right away and see if they can offer any assistance. Late payments and bills sent to collections can be reported on your credit reports and hurt your credit scores. This can make it more difficult to get approved for loans or even some things like utility accounts or apartment rentals.

But if you clue in your lender as soon as possible, they may be able to help you with options such as financial assistance or forbearance. Financial assistance may mean getting some payment relief or signing up for other benefits that make it easier to pay your bills. Forbearance is a pause on payments—but beware that interest will still accrue during this time.

Also consider credit counseling to help you dig out of credit card debt or get on track with your budget. Counselors at accredited nonprofit credit counseling agencies can review your finances, offer advice and, if necessary, get you on a payment plan for low or no cost.