How do I get out of debt if Im broke?

You can get out of debt if you’re broke by negotiating a debt management agreement or getting a loan from a friend or family member who won’t expect repayment. You could also consider getting a debt consolidation loan or a balance transfer credit card, as long as you have an alternative form of income to list on the application. Alternative forms of income include things like Social Security or disability benefits, retirement funds, and child support or alimony payments.   

In addition, you’ll need to adjust your budget. Cutting back on certain expenses could leave you with extra money that you can use to pay off your debt. You can also consider various government programs that cover expenses like food, energy bills, medical expenses and telephone services for people who are struggling to afford their living expenses. Below is a detailed list of several ways to get out of debt if you’re broke.

Ways to Get Out of Debt If You’re Broke

Debt Consolidation Loan

Most lenders let you use alternative forms of income on a debt consolidation loan application if you don’t have a primary income from a job. Some examples of alternative forms of income include alimony, child support, disability benefits and unemployment benefits.

To read about the top-ranked offers, check out WalletHub’s picks for the best debt consolidation loans. You can also estimate your potential rates with our free pre-qualification tool.

Balance Transfer Credit Card

You can use a balance transfer credit card to pay off your existing debts and consolidate them into one balance, assuming you’re approved for a high enough credit limit. If the balance transfer credit card has a 0% introductory APR, you can pay down what you owe much faster and at much less of an expense.  You will need to provide a source of income when applying for a credit card, so consider all the ways that you receive money.

You can read about the top-ranked balance transfer credit card offers on WalletHub.

Debt Management Program

Debt management allows you to work with either the lender or a third-party company to negotiate a new payment plan. This plan can result in you getting a lower interest rate, a longer repayment period or fees waived.

Loan From a Friend or Family Member

A friend or family member won’t require you to show proof of income to get a loan. However, you risk damaging your relationship if you don’t repay what you borrow.

The Island Approach

The Island Approach is a way to use separate credit card accounts for different transactions. For example, you can use one account for everyday purchases that you’ll pay in full each month and another account to manage a revolving balance. Using this technique will reduce the amount of interest that accrues, which helps you get out of debt sooner. It will also allow you to get the best rewards on everyday purchases and the best balance transfer deal.

Repay Your Most Expensive Balance First

It’s smart to repay your most expensive balance first, since that balance would cost you the most in interest over time. You can do this by allocating most of your debt-repayment budget to this balance and paying at least the minimum amount due on your other balances with the rest of the budget. Once the balance with the highest interest rate is repaid, you can repeat this process until you’re debt-free.

The Snowball Method

This method involves paying back your smallest balance first and then moving onto your larger balances. After you pay off your smallest balance, you can put whatever money you had set aside for that balance toward your next smallest balance. This cycle will repeat until all of your balances have been repaid.

The snowball method is easy to implement, and you may see results faster, but you incur more interest and ultimately take longer to completely pay off your debt compared to the Island Approach.

Debt Settlement Program

With debt settlement programs, you make monthly payments to the company that claims to be “helping you,” but they will often withhold payments from your creditors. This puts the company in a better negotiating position but causes you to default. You can save money by settling debt yourself, but you’ll have to negotiate with each creditor by yourself, which could end up being a tedious process. Overall, debt settlement is extremely bad for your credit score, and a record of debt settlement will stay on your credit report for up to 7 years.

Adjust Your Budget

If you want to get out of debt, you’ll have to adjust your monthly budget. If you organize your finances and look for ways to cut back on extra spending, it could free up some cash that you can put toward your debt.

You should also keep track of your WalletScore, which assesses your financial health based on factors like credit, spending, retirement planning and emergency preparedness. Following your personalized WalletScore recommendations will get you into better shape financially.

Use Government Programs You’re Eligible For

There are several government assistance programs that can help out with energy bills, paying for food, phone bills and medical expenses. Examples include the Supplemental Nutrition Assistance Program (SNAP), the Children’s Health Insurance Program (CHIP), the Low Income Home Energy Assistance Program (LIHEAP), the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), and Medicaid. It’s worth looking into these programs to see which you might qualify for.

For more information, check out WalletHub’s step-by-step guide on the best way to pay off debt.