How can I get out of debt with no money and bad credit?

You can get out of debt if you live paycheck to paycheck with the help of a debt management program or a loan from a friend or family member who doesn’t expect repayment. Another thing that can help you get out of debt is adjusting your current budget to remove certain luxuries and make room for extra debt payments.... read full answer

How to Get Out of Debt If You Live Paycheck to Paycheck

1. Use a debt management program

   Debt management programs are offered through lenders and third-party companies. These programs allow you to negotiate a new payment plan, which could involve lowering the interest rate, extending the repayment period or waiving fees.

2. Get a loan from a friend or family member

   A friend or family member may be willing to loan you money if you have limited income. Keep in mind that if you don’t repay what you borrowed, you risk damaging your relationship.

3. Choose a strategy to pay off balances

   One option is to repay your largest balances first, since they will accrue the most interest over time. To do this, allocate the majority of your debt-repayment budget to your largest balance and make the minimum payments on your other balances. After the largest debt is paid off, you can repeat this process until you’re free of debt.

   Another strategy is called the “snowball method,” which involves paying your smallest balances first before moving onto the larger ones. As you pay off your balances, you’ll keep allocating your debt-repayment budget to the next smallest balance, and eventually your debt will be paid off.

4. Use the “Island Approach”

   The Island Approach involves using separate credit card accounts for different transactions. For example, you may want to use one credit card account to manage a revolving balance and use another for everyday expenses that can be repaid in full every month. This method makes it easier to get out of debt by reducing the amount of interest you pay.

5. Get a debt consolidation loan

   You may be able to get a debt consolidation loan if you live paycheck to paycheck, but you might not get a very large loan and you could potentially receive a high APR. If you apply for a debt consolidation loan and receive a rate that’s higher than the ones you have on your existing debts, you should consider a different way to consolidate.

   You can estimate your potential rates with multiple lenders at once using the free pre-qualification tool on WalletHub.

6. Get a balance transfer credit card

   Getting a balance transfer credit card may be an option to help you get out of debt if you live paycheck to paycheck, too. However, if you cannot get a lower rate than your original debts, you should reconsider getting one of these cards.

7. Adjust your current budget

   You will have to adjust your budget to make more room for debt payments. It’s important to analyze how you’re spending your money to see where you can cut back. You will be able to allocate the money you’re saving to paying off your debt.

8. Use a debt settlement program

   With a debt settlement program, you’ll make payments to the company that is supposedly “helping you,” but they will often withhold payments from your creditors. This helps them get into a better negotiating position, but it will cause you to default. Debt settlement is very bad for your credit score, so you should only consider it as a last resort.

9. Monitor your finances

   Keeping track of your finances will help you manage your money better and can help you find your way out of debt. One way to keep track of your progress and improve your position is to sign up for a free WalletHub account. You’ll get personalized recommendations to improve your WalletScore, which is based on factors such as your credit score, spending, emergency preparation, and retirement planning.

You can read more about how to get out of debt on WalletHub.

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. ... read full answer

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.

Yes, you can get rid of debt without paying in rare cases, but it is very risky and will severely damage your credit score. You can get rid of debt without paying by waiting for your state’s statute of limitations to end and hoping you don’t get sued by creditors in the meantime. Just keep in mind that once the statute of limitations ends, your creditors can still try to collect money in other ways.... read full answer

Alternatively, consider using a debt management program, opting for debt settlement or filing for bankruptcy. You will still have to repay at least some of your outstanding debt, but you could get some of it forgiven. You can find more details below.

Options for Getting Out of Debt Without Paying in Full

Debt Management

Debt management programs will negotiate with your creditors to create a new payment plan for you, and they will often negotiate for lower interest rates as well. Although you’re still repaying the debt, you’ll typically end up paying less than you would have if the interest rates and payments stayed the same.

Debt Settlement

Debt settlement is a way for you to get out of debt by paying less than what you owe. The process involves negotiating a lump sum payment in exchange for the rest of your debt being forgiven, which may not be possible until you default. Defaulting will severely damage your credit.

Although debt settlement can be done by yourself, it is usually done by a third-party company on your behalf. They will charge a fee for their services.

Bankruptcy

Chapter 7 bankruptcy is what most people think of when they hear the term bankruptcy. It involves selling your non-exempt property and then having most of your debts discharged. Chapter 13 bankruptcy allows you to keep your property in exchange for at least partial repayment of your debt.

Bankruptcy can help get rid of debt, but you should be prepared for the consequences that follow. Bankruptcy will stay on your credit report for 7-10 years and will severely damage your credit score.

Preferred Ways to Get Rid of Debt

The best way to get rid of debt and save money in the process is to get a debt consolidation loan or a balance transfer credit card. These options let you combine high interest balances into one easy-to-manage monthly payment and can improve your credit score if you make the payments on time.

It’s also a good idea to monitor your finances and budget accordingly. Analyzing what you spend and cutting back on certain expenses can leave you with extra money to help get out of debt. You can also sign up for WalletHub and follow personalized WalletScore recommendations that are based on factors such as your credit, spending, emergency preparedness and retirement planning.