How To Get Out of Debt With no Money - Featured Image
29.05.2022

How to Get Out of Debt With No Money (+5 FAQs Answered)

by Milos Djordjevic

You’re in debt, and you need a way out. Maybe it’s student debt. Perhaps it’s credit card debt. It’s not important at this point.

Your paycheck isn’t enough, or you don’t earn any income at all. You want to figure out how to get out of debt with no money

We’re here for you. This article will outline the steps you need to take to get out of a bad financial situation as quickly as possible. 

Let’s get to it.

How to Get Out of Debt When You Are Broke

Let’s examine a proven game plan to get out of debt when you’re broke.

Best Ways to Get Out of Debt

Understand Your Situation

Why are you broke?

Is it because of a lack of income or due to overspending? Understanding your actual situation is the first step to success. 

Start by differentiating between wants and needs. Go over each expense in your monthly statements. Ask yourself if you can live without any one of them and stop wasting money on things you don’t need. Ask yourself this question every time you want to buy something. 

Strengthen Your Income

The best way to get out of debt is to start making more money. 

It sounds obvious, but a better monthly income is necessary to repay debts before they ruin your life. 

How can you achieve this? 

Tackle your primary income first. Find a job if you don’t have one, and do it right away.

If you already have a job but don’t make enough, you need a side hustle. Where do you start? 

Online, of course. Consider selling on eBay, Craigslist, or Kijiji. You could also attempt to become a freelancer or try out Amazon dropshipping

Whatever path you choose, make sure you’ve got enough money coming in every month to cover your necessities and debt payments. 

Budget With a Plan

Budgets and debts are mortal enemies. However, budgeting requires a solid and well-thought-out plan to work. 

Whatever your income, you can always start budgeting to reduce your expenses. 

We suggest you ditch the traditional 50-30-20 budget rule for now. Instead, allocate anything you can spare to paying off your debt. 

Since groceries could take up from 10 to almost 30% of your income, saving on food is a good way to start setting aside a sizable amount of money. 

Ditch Your Credit Card, Temporarily

Keep your credit card out of sight, but don’t close your account. It will hurt your credit score. You’ll need a good score to lower your interest rate, which is one of the tips for getting out of debt discussed below.

Pay on Time

Avoid late fees at all costs. It’s already bad that you have to pay off your loan. Don’t get buried under late fees.

Look for Lower-Interest Options

What do you need to do after you’ve gone out of your way to increase your credit score? 

You need to find a lower-interest loan. A high credit score and a positive payment history will help you secure a better deal. 

Opt for a Mortgage Refinance

If you’re a homeowner, a mortgage refinance might be an option. 

You won’t get debt free, but you’ll have less interest to pay, which will be very helpful in your situation. 

However, you might have to pay for mortgage insurance if you don’t have enough equity.

You shouldn’t owe more than 80% of what your house is worth. To calculate if you have enough equity, add the debt you want to pay off to your current mortgage amount, and divide that sum by your home’s value. The result will be your loan-to-value ratio. Try this online calculator for more accurate results. 

Seek Free Credit Counseling and Financial Assistance Options

If you live in the US and are unemployed and can’t pay bills, call 211—a service supported by United Way—to get help. You can also visit their official website to learn more and find 211 agencies near you. 

Consider Debt Relief Options

Such options can be a powerful tool to help you get rid of serious debt. Let’s look at a couple of choices:

  • A debt consolidation loan can be helpful to those who have multiple loans and good credit history. This option will merge all your loans into a single one. You’ll benefit from a lower interest rate if you have a solid enough credit score. It will also help with budgeting since you’ll be managing just one instead of several payments. 
  • The snowball and the avalanche methods are two specific ways to get out of debt. These approaches are best for dealing with multiple loans that you can’t or don’t want to consolidate. The snowball method will have you pay the bare minimum for all but the lowest-balance loan, on which you’ll focus until it’s paid off, allowing you to then concentrate on the next lowest-balance one. With the avalanche method, you focus on the highest-interest loan first, but the overall approach is the same. 

Keep Going One Step at a Time

It’s not easy to get rid of debt. However, tackling one payment after the other and paying off one debt at a time is perfectly doable. 

Keep going, and you’ll succeed. You have to tighten your belt for a while, but the end goal is worth it.

1. How to Pay Off Credit Card Debt When You Have No Money

(Upsolve)

If the tips above don’t work for you, you should consider bankruptcy. 

You have two options: a Chapter 7 bankruptcy or a Chapter 13.

  • Chapter 7 bankruptcy is reserved for low-income individuals. You’ll have to take an eligibility test, and if you pass, your unsecured debt—including credit card debt—will be discharged. 
  • Chapter 13 bankruptcy involves a debt repayment plan, which lasts for a set period and can be as long as five years. Any debt you can’t pay off before the repayment period ends will be automatically discharged. 

These methods require you to meet with a credit counselor at least 180 days before filing for bankruptcy. 

Declaring bankruptcy is a valid option if you’re considering how to get out of debt with no money and bad credit. Your credit score will be hugely affected, however. It will plummet, and you won’t be able to raise it quickly. It will take at least seven years for a bankruptcy to disappear from your credit report. But if you already have a bad credit score, it won’t impact you much.

2. How to Pay Off Debt Fast

(Wells Fargo)

A strategy to pay off a loan as fast as possible can save you thousands in interest fees. 

Pay More

If you can, pay more than your minimum debt payments. Employ a tighter budget and cut unnecessary expenses to get that extra edge. 

Pay More Frequently

Another strategy you could try is to pay more than once a month. It will get you out of debt faster and help your credit score by lowering your balance/utilization ratio. 

Schedule Your Bills

Keeping your bill payments tidy and organized will help you with budgeting. Consider using an online bill payment tool to make your life easier.

3. How to Get Out of Debt on a Low Income

(LendingTree, Ramsey Solutions)

Stop Taking Loans

If you’re already struggling to make ends meet, signing up for more debt is like digging your own grave. 

Pay in Cash

If you can’t budget appropriately, switch to cash only, which will make controlling and managing your spending habits much easier. 

Ask for a Raise

Even if you have a reliable paycheck and a side hustle, you should still try to add more money to your pay. More so if you earn a low income.

4. How to Get Rid of Debt Without Paying

(Bankrate)

If you’re struggling with student debt payments, you can look at several ways to eliminate student loan debt.

  • Public sector workers who have made 120 qualifying payments while employed full-time by a qualifying employer could get what remains of their loan forgiven. 
  • Teachers who have worked for five or more consecutive years in a qualifying school or agency could get up to $17,500 forgiven off their federal loan.
  • Law enforcement officers, firefighters, or other qualifying individuals might get their Perkins loan canceled or discharged. 
  • Students whose school closed while they were still enrolled, or soon after they left the school, could qualify for a student loan discharge. 

Debt settlement might also help you get debt free. Depending on what your creditor agrees to accept, you might be able to settle to pay a sum 50 to 20% lower than your debt balance. You can negotiate on your own or hire a lawyer to do it for you. 

Is it viable to simply ignore debt and not pay it off? 

Of course not. Here’s why:

  • your creditor will sue you
  • you will have to deal with creditors and collection agencies, and it’s not pleasant
  • your credit will plummet
  • you will have a hard time borrowing money in the future, and it will cost more

Your financial stability will be at risk, and it will take a long time before you fully recover. Limit getting into debt as much as possible in the first place. It’s always better to live with less money than to pay interest fees.

5. How to Use a Credit Card Responsibly

(Capital One)

Learning the fundamental principles of using your credit card responsibly will help you achieve financial stability in the long run. It will exclude you from 55% of indebted Americans who have credit cards.

Know What You’re Signing Up For

Do not sign customer agreements mindlessly, as your future and money are on the line. 

You must know exactly what the terms are, what benefits you’re getting compared to other options, and if the creditor could potentially take advantage of you through the fine print. 

Be on Time

Don’t pay more than you need to. Avoid late fees at all costs. The best way to pay off credit card debt is to lower what you owe. Pay on time and safeguard your wallet and credit score. 

Mind Your Credit Limit

Don’t use your card unless you need to. A good rule of thumb is to stay below 30% of your credit limit. 

Understand Monthly Statements 

Keep track of your monthly statements. Read them carefully, taking note of these questions:

  • When is your payment due?
  • How much do you need to pay?
  • What is your balance?
  • What is your allowed credit limit?

Conclusion

We hope that these debt reduction strategies will be helpful to you. 

Keep an eye on your balance, and never panic! You can turn the situation around with enough effort, sacrifice, and a strong will to succeed. 

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