Grace Enfield, Content Writer
You can get out of debt with no money and bad credit with the help of a debt management program or a loan from a friend or family member. You should also look into getting a debt consolidation loan for bad credit, especially if you have some income despite not having any money saved. Careful budgeting will go a long way, too.
How to Get Out of Debt with No Money and Bad Credit
- Debt consolidation loans for bad credit. You can compare WalletHub’s picks for the best debt consolidation loans for bad credit, then estimate your potential rates with our free pre-qualification tool. If you have no job, you can use alternative forms of income on your application, such as unemployment benefits, child support, alimony or Social Security benefits.
- Debt management programs. Debt management allows you to negotiate a new payment plan with your lender. This typically involves getting a longer repayment period, a lower interest rate and fees waived. Debt management can hurt your credit score, but it’s better than defaulting on a loan.
Debt settlement. You may be able to settle your debt directly with a lender, by offering a lump sum in exchange for the rest of your debt being forgiven. But this generally won’t work until you’ve already defaulted.
Alternatively, you could try a debt settlement program. This involves making monthly payments to the settlement company while they withhold money from your creditors until your creditors allow you to repay only a portion of your balance. This is terrible for your credit score, and the record of debt settlement will stay on your credit report for 7 years.
- Paying off your most expensive balance first. If you have more than one balance, it’s smart to pay off the most expensive one first since it will cost you the most over time. To do this, you should allocate the majority of your debt-repayment budget to that balance, while paying at least the minimum due on your other debts. Once it’s paid off, you can move onto the next most expensive balance and repeat the process until you’re debt-free.
- The “snowball method.” The snowball method helps you focus on paying back your smallest debts first before you move onto larger balances. Once your smallest debt is taken care of, you can use the money you set aside to pay off that debt and put it toward the next smallest balance. You’ll then use this cycle until all of your balances are repaid.
- The “Island Approach.” The Island Approach means using separate credit card accounts for different types of transactions. This way, you can use one account to manage a revolving balance while using another account for everyday expenses that you can repay in full each month. This will reduce the amount of interest you pay, making it easier to get out of debt.
- Loans from friends or family members. A loan from a friend or family member may have better terms than a conventional debt consolidation loan. Keep in mind that you may put strain on your relationship if you cannot repay the loan.
You can read more about how to pay off debt on WalletHub.
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