How to get out of debt with no money and bad credit

By Matt Mayerle
Modified on June 6, 2023
how to get out of debt with no money and bad credit

Are you trying to work towards living a debt-free life but feeling like your finances and credit scores are holding you back? Unfortunately, having bad credit scores can affect borrowing in a negative way. The worse your score is, the harder it can seem to find safe and reliable loan options. If you find yourself in a situation like this, you are probably wondering how to get out of debt with no money and bad credit.

Between debt consolidation personal loans and other debt management plans, borrowers have plenty of choices to pick from when it comes to reducing their debt! 

What Is Good Debt vs. Bad Debt?

Debt is any kind of money owed to a business or person. Someone who owes the debt is often referred to as a Debtor, while people who are due debt payments are often called creditors. Debt can also be broken down into two categories; good debt and bad debt

Bad debt is usually associated with loans that do not necessarily support the borrower’s financial well-being. Frivolous credit card debt is an example of what credit counselors may refer to as bad debt. 

Good debts are loans and balances that give the borrower more than just money. Student loans or home equity loans are examples of what is commonly thought of as good debt. Student loans support education and career advancement, and home equity loans provide the borrower with property that will hopefully accumulate in equity. 

Debt Consolidation Loans With Bad Credit

A debt consolidation loan may be the perfect way to reduce multiple debts to one monthly payment. Below is more information on some of the most popular ways you may be able to consolidate your debt when having bad credit. 

Personal Installment Loans To Consolidate Debt

Perhaps the most convenient way to consolidate debt is with personal installment loans, sometimes called personal loans. A personal installment loan allows people to borrow money in one lump sum and then take care of their balance in fixed monthly payments. These consistent payments make paying back installment loans predictable, which can be helpful for people trying to work on debt reduction and organize their finances. 

Payday Loans

You may have considered a payday loan if you need just a few bucks to get by until your next paycheck. Instant payday loans online are a type of funding that comes with brief payback terms and higher interest rates. Borrowers who pay off payday loans in fourteen days or less may be able to avoid these interest rates, but if not, rates can cause balances actually to increase from month to month. These loan details make payday loans a risky financial option for people who are trying to improve a bad credit score and get their budget under control. To prevent putting yourself in a cycle of debt, it may be a better idea to give yourself some financial breathing room and go with another type of bad credit loan.

Cash Advances

If you already have a credit card account, you may use it to make purchases or even take out a cash advance. Keep in mind that cash advances on a credit card are considered high-interest debt, so make sure you can pay off your balance right away. If you need more money than you can afford to pay back within a month or so, you are probably better off going with another bad credit funding option. 

For extreme circumstances, you may also be able to get a cash advance from your employer. With this option, you would ask your employer to front you money for upcoming shifts if you are paid by the hour or the upcoming pay period if you are on salary. While this is an option to consider, you should only ask for a cash advance from your employer if you are in a dire situation and there are no other options. It is also important to remember you will have to work off what you borrowed, so make sure this works with your budget before requesting a cash advance from an employer. 

Bank, Credit Union, or Private Lender

Depending on your financial situation, you may be able to find a debt consolidation personal loan with a bank, credit union, or private lender. Those with high credit scores may have luck finding loans with traditional banks. But, it may be difficult to find a low-interest personal loan for bad credit when working with a traditional retail bank. 

Borrowers living within a certain area or meeting specific eligibility criteria may consider loans with their local credit union. Credit unions typically cater to a niche group of people, so look into the qualification requirements before applying. 

Lastly, a private lender may also be able to help you borrow money with bad credit. Many private lenders look at other factors besides credit, such as proof of income, when determining loan approval. For the most flexible payment plans and convenient loan terms for your personal budget, a private lender may be your best choice. Before committing to any one lender, do a bit of research on your own first. You may be surprised at the different deals direct lenders are able to offer!

Debt Settlement vs. Debt Consolidation Loan

If you have an extreme amount of debt, you may be wondering if debt settlement or debt consolidation is the better option for you. Debt settlement involves working with a debt settlement company and having an agent negotiate with your various creditors. The goal of working with a debt settlement company is to avoid collection agencies and reduce debt instead of declaring bankruptcy. 

While settling debt may be faster than debt consolidation, it can often be detrimental to your credit reports. Although it may take longer, getting a debt consolidation loan is usually in the best interest of your personal finances. 

How To Earn Money To Afford Debt Payments 

Instead of getting a loan, here are some other options to consider to help you earn some extra money to pay off your debt! 

Get a Side Hustle 

One way to earn more money to pay off debt is to get a side hustle or start a business. There are even remote side hustles you can do from home! As long as you have an internet connection, some free time, and motivation, you can earn hundreds or even thousands of extra dollars each month. 

Declutter and Sell

Another way to get some extra cash when you feel like you have too much debt is to sell some of your unwanted items. There are most likely clothes, appliances, home decor pieces, and other items you no longer use regularly, just laying around your house or in storage. 

Come Up With a Financial Organization System

You may find that just organizing your finances is enough to help you afford your debt payments. If you have a habit of impulsively spending money, you could be wasting hundreds of dollars each week on things you don’t really need. Take some time to plan out your fixed monthly expenses (bills, rent/mortgage, groceries, etc.) so you know the bare minimum you need each month. From there, you can designate any extra funds you bring in to go towards paying off your debt! 

Tips for Paying off Debt Faster

We all want to pay off debt as quickly as possible. Activity and habits associated with paying off debt can also help you improve your credit score. For example, maintaining a consistent payment history and reducing debt both have the ability to boost your credit score several points.

Try the tips below to help you pay off debt and be on your way towards new and improved credit!

Try Credit Counseling 

Nonprofit debt management companies may be able to connect you with a credit counselor for free. These counselors can walk you through debt-relief options or give helpful advice on how to handle your finances to reduce debt. 

Pay More Than the Minimum Amount Due

If you are able, pay more than your minimum payment due. Even if you pay a bit extra sometimes, you could end up saving a significant amount and pay off your loans faster. 

Avoid Multiple Hard Credit Checks

Avoid applying for additional credit accounts and acquiring new debt. Each time you apply for a loan, credit card, or other financial product, a hard credit check goes on your credit report. Having multiple hard credit checks on your report within a short period of time can cause your score to go down up to five points per inquiry! So, avoiding new credit applications will help you preserve your credit score and as well as prevent you from digging yourself into a deeper hole of debt. 

Create a Debt Management Program

Come up with a debt management plan, or try debt payment challenges. The debt snowball and the debt avalanche methods are two popular ways you can work towards paying off debt. The snowball method involves paying off small debts first and using that momentum as motivation to pay off larger debts until you have paid off all your balances. The debt avalanche method takes the opposite approach and encourages you to pay off large debt first and work your way down to paying off your smaller balances. 

Negotiate With Creditors for Better Interest Rates 

It may also be worth your while to contact your various creditors and try to negotiate lower monthly payments or more affordable interest rates. Often, creditors are willing to work with their borrowers and may provide a lower interest rate if it ultimately prevents you from defaulting on your loan. 

Bottom Line: Getting Out of Debt With No Money and Bad Credit

When trying to find debt relief, consolidation is usually the best option. Debt consolidation helps you organize your finances and reduce several balances down to one monthly payment. It may take time, but successfully paying off debt will help you develop good financial habits and potentially increase your credit score!

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