How to Stay Out of Debt: Tips, Strategies & More

It's better to pay off your credit card than to keep a balance because paying the card off will save you money on interest. Credit card companies charge interest when you don't pay your bill in full every month, but you'll enjoy a grace period with no interest if you always pay your full statement balance by the due date.

Some people think you need to carry a balance in order to see positive information on your credit report, but that's simply not true. You don't even need to use your credit card to build credit. Simply keeping an account open and in good standing is enough to help your credit.

Here's why it's better to pay off your card than to carry a balance:

• If you pay your bill in full each month, you won't be charged any interest on most credit cards, thanks to a grace period. But you'll lose the grace period if you don't pay in full one month, and you'll have to pay your entire balance for two consecutive billing cycles to get it back.
• You don't need to carry a balance for a credit card to help your credit score. What matters most for credit building is meeting due dates and keeping credit utilization low.
• Paying your bills on time doesn't require you to pay your balance in full each month. You just have to make the minimum payment listed on your statement. But if you take on too much debt, you may find it hard to make your monthly payments.
• Carrying a balance makes it harder to keep your credit utilization low, since your everyday spending will be added on top of the amount you're carrying from month to month. It's best to use less than 30% of the credit made available to you.

So, to recap, it's better to pay off your credit card than to carry a balance because it builds your credit history just as well without subjecting you to interest charges. Just remember, not carrying a balance does not mean you have to stop using your credit card. There is a middle ground. A balance will be listed on your credit card statement whenever you make purchases, but if you pay that amount by the due date, you won't really be carrying a balance.

Using your card regularly actually helps because having a credit utilization ratio between 1% and 10% is slightly better for your credit score than 0%. But credit utilization is based on your statement balance, and your monthly statement comes before the due date. So you can still pay your bill in full every month while doing right by your credit score.

Why 0% APR credit cards are an exception

During the 0% APR introductory period, your balance – whether from a purchase or balance transfer – won't accrue interest as long as you pay the minimum amount required by the due date each month. So, keeping a balance is expected, but you do have to make monthly payments along the way. And if you don't pay in full by the end of the 0% period, interest will come into play.

That said, if you've got some credit card debt you'd like to get rid of, a 0% balance transfer credit card could help you save a lot of time and money. And if you're trying to improve your credit, WalletHub's free daily credit scores and credit analysis can get you on track.

The best ways to save money are to make a budget, work on paying down high-interest debt, and cut out luxuries. For example, most people could save a lot of money every year by not dining out, considering that the average American spends $2,000 to $3,500 per year at restaurants, depending on the state.

There are plenty of other ways to save money, too, and it's important to always be on the lookout for savings opportunities, whether you're struggling financially or currently living comfortably. The more you learn how to save money, the better you'll be at budgeting and managing your finances in general. You'll also have more spare cash for pursuing your goals or guarding against future financial insecurity.

Top 21 Tips for How to Save Money

View entire answer

Budgeting isn't fun. There's no way around it. But budgeting is something that we must undertake in order to gain financial awareness and, ultimately, control both our spending and saving habits. The process of making a budget can be as simple or as complex as you want it to be, but you'll want to record overall monthly inflows – take-home pay as well as other income sources – and outflows – amounts spent – at a minimum.

Most people will take things a step further, though, itemizing expenses, identifying specific spending trends and tracking savings goals over time. We'll break down both approaches below.

Step 1 – Establish Goals:

View entire answer

Hi!  My heart goes out to you and your husband – this is such a tough time for young people to make it financially. My daughter is just your age, and I completely sympathize with you on how hard it is to make a go of things financially. I imagine that most of the time you try not to think too much about the current state of your finances but that the worry pops up randomly and just turns your stomach when it comes.

Let's talk about some of the things you guys can do to feel more in control and start climbing out of debt. First, it might be worth taking a snapshot of your total financial picture – making a “financial plan.” This action will probably make you feel even more nervous and upset, but it is essential to see where you are right now. Financial planning entails the concept of complete financial health including:

·         Managing cash flow

·         Managing debt

·         Planning for home purchases, kids' college and other long term goals

·         Insurance/ Risk Management

·         Minimizing taxes legally

·         Retirement planning

·         Investing to grow your wealth

·         Estate planning (including wills and trusts)

I am not sure what kind of debt you have (credit card, student loan, car payments, mortgage) or how far in debt you are, so I can't really address specifics for you. What I will do here is write out some general money management advice, and then you can write again for more specific ideas if want to.   If you are going to have student loans to pay back. If so, you'll want to make sure you pay them regularly and on time. Also, if you have credit card debt you want to work to pay that debt down, avoid incurring new debt, and try to pay off your credit cards in full every month.

Here are some steps I recommend to help plan your finances:

1.      Make a budget if you don't have one. I am not sure if you already have a budget, but the first thing today is create a simple budget so you can see what money comes in and what goes out.  Steel yourself because it may be very depressing, but it's an essential step. Here are three free sources for budget worksheets from Navy Federal Credit Union, America Saves, and the Federal Trade Commission.

2.      Make sure you have an “emergency fund” – 3 of 6 months of money in a liquid (savings or checking) account.

3.      You are probably going to have to change your lifestyle somewhat to cut spending to get out and stay out of debt. You could also maybe freelance or take second jobs to increase your income.

4.      Also, if you have credit card debt you want to work to pay that debt down, avoid incurring new debt, and try to pay off your credit cards in full every month.

5.      Both of you will want to start contributing to your company 401(k) plan (if one is offered) when you can, especially if your company matches any of your contribution.  That's like getting extra salary!  In fact, if your company does match contributions, you'd want to put enough money in the 401(k) to max out that match when you get to the point that you are able to.

6.      When you get to the point that your debt is manageable, you can start investing the extra money you aren't spending. You can use a do-it-yourself approach (such as an ETrade or Scottrade account) or hire an investment advisor to help.

7.      Evaluate your insurance needs – life, auto, health, renters etc. to make sure the assets you have gained are safe.

8.      Make sure you have a will and that your insurance beneficiaries are up to date.

These steps are just a start. If you are interested in finances and money management there is lots of good information out there to help you do it yourself. If you want to pay a professional for advice, consider hiring a CFP® (look for them on the CFP Board website) to help you create and follow a comprehensive financial plan.  The cost may seem to be too much, but if you are having trouble making changes yourself, the expense could be worthwhile. You might ask for something like that as a holiday present from your parents or your husband's parents.

Good luck to you!  This is a really hard time, but just asking the question and beginning to think about making changes in your financial life is a good first step.  And you have your husband to commiserate and work with to make changes.  Things will work out!  Thank you for writing and please write again if you would like more advice.

People miss monthly billing due dates for all sorts of reasons – from everyday distractions to identity theft – but the issue ultimately boils down to a combination of two fundamental factors:  forgetfulness and cash flow. It's nothing to be ashamed of: Roughly 24% of consumers don't pay all of their bills on time, according to the National Foundation for Credit Counseling. But it is a problem that needs fixing, given that late payments can cost you a lot of money and significantly damage your credit standing if you're not careful.

Fortunately, the forgetfulness issue should be fairly easy to address with a bit of organization and the right notification process. Not having enough money to pay your monthly bills, on the other hand, will most likely necessitate stricter budgeting and a strategic approach toward debt.

View entire answer

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.

Ways to Get Out of Debt with No Money and Bad Credit

1. 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.
2. 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.

3. 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.

4. 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.
5. 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.
6. 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.
7. 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.

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.

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.   

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.

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.