You can get out of debt with no money and bad credit by budgeting your income, reducing your monthly expenses, using debt consolidation loans, and getting a side hustle.
The average American has $90,460 in debt.1 And if you happen to have bad credit, you may be worse off because bad credit scores affect borrowing. Many bad credit borrowers get stuck with high-interest rates and unmanageable monthly payments. 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. Good debts are loans and balances that give the borrower more than just money.
Take a look at the comparison chart below for additional information.
| Criteria | Good Debt | Bad Debt |
| Purpose | Invests in your future, likely to generate income or increase in value. | Primarily for consumption, doesn’t generate income or appreciates minimally. |
| Examples | Student loans, mortgage, business loans | Credit card debt for shopping, payday loans, car loans for depreciating assets |
| Interest Rates | Generally lower interest rates | Higher interest rates |
| Tax Benefits | Often tax-deductible (e.g., mortgage interest, student loan interest) | Rarely tax-deductible |
| Repayment Terms | Longer, more flexible repayment terms | Short-term, often with strict penalties for late payment |
| Credit Impact | Can improve credit score when managed well | Can quickly damage credit score if mismanaged |
| Financial Growth | Potential for ROI (Return on Investment) | No ROI, can lead to financial strain |
| Risk Level | Generally considered lower risk | Higher risk due to high interest rates and fees |
| Emotional Impact | Often seen as a positive step towards a goal (e.g., home ownership, education) | Often leads to stress and financial anxiety |
Warning Signs of Unmanageable Debt
Recognizing the early warning signs of unmanageable debt is crucial for taking timely action to regain control of your financial situation. If you find yourself experiencing any of the following indicators, it may be time to reassess your financial habits and seek professional advice:
- Minimum Payments Only — If you find that you can only afford to make the minimum payments on your credit cards or loans, this is a red flag. Minimum payments mostly cover interest and barely chip away at the principal amount.
- Rising Credit Card Balances — If your credit card balances are increasing each month and you’re nearing your credit limit, it’s a sign that you’re relying too much on credit to sustain your lifestyle.
- Late or Missed Payments — Consistently making late payments or missing payments altogether can not only damage your credit score but also indicate that you’re struggling to manage your debt.
- Overdrafts and Bounced Checks — Frequent overdrafts and bounced checks are signs that you’re living paycheck to paycheck and struggling to keep up with your financial obligations.
- High Debt-to-Income Ratio — If a large portion of your income is going towards debt repayment, leaving little for savings or other expenses, your debt may be unmanageable.
- Using Credit for Basic Necessities — If you find yourself using credit cards to pay for basic necessities like groceries or utilities, it’s a sign that your financial situation is precarious.
- Ignoring Bills and Statements — Avoiding looking at your bills or bank statements because you’re afraid of what you’ll find is a sign that you’re losing control of your finances.
- Constant Worry and Stress — If concerns about debt are causing you constant stress or affecting your sleep and overall well-being, it’s a clear sign that action needs to be taken.
- Receiving Collection Calls or Notices — Being contacted by debt collectors is a serious sign that your debt situation is out of control, and immediate action is required.
- No Emergency Fund — The absence of an emergency fund means you’re ill-prepared for unexpected expenses, making you more reliant on credit, thus exacerbating your debt situation.
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 Loans
Perhaps the most convenient way to consolidate debt is with personal loans, sometimes called personal loans. A personal loan allows people to borrow money in one lump sum and then take care of their balance in fixed monthly payments.
You may ask, “What can I use a personal loan for?” These consistent payments make paying back personal 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 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 using credit cards for cash advance loans results in 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. 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. However, you should only ask for a cash advance from your employer if you are in a dire situation and there are no other options.
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 bad credit loans when working with a traditional 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.
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.
| Criteria | Debt Settlement | Debt Consolidation Loans |
| Purpose | To negotiate and reduce the total debt owed | To combine multiple debts into a single loan |
| Impact on Credit Score | Usually negative, as it involves not paying your debts fully | Can be positive if managed well |
| Time Frame | Typically 2-4 years | Varies based on the loan terms, often 3-5 years |
| Cost | Fees for the settlement company, possible tax implications | Interest on the loan, possible fees |
| Professional Help | Generally involves hiring a debt settlement company | Can usually be done independently |
| Monthly Payments | No monthly payments to creditors during negotiation | Fixed monthly payments |
| Creditor Harassment | Possible, until settlement is reached | Usually stops once debts are consolidated |
| Legal Risks | Risk of being sued by creditors | Lower legal risks |
| Accessibility | Not all types of debt can be settled | Most types of debt can be consolidated |
| Financial Control | Less control, as you’re relying on a third party to negotiate | More control, as you’re responsible for making payments |
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 lying 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 spending money impulsively, 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 toward paying off your debt!
Tips for Paying off Debt Faster
We all want to pay off debt faster. 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 by several points.
Try the tips below to help you pay off debt and be on your way toward 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 paying 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.
Frequently Asked Questions About Debt Relief
A debt consolidation loan allows you to combine multiple debts into a single loan, often with a lower interest rate. This can simplify your payments and potentially improve your credit score over time.
Your credit score is a reflection of your creditworthiness. While a higher score can get you better loan terms, having bad credit doesn’t necessarily disqualify you. Some online lenders and credit unions specialize in offering loans to those with less-than-perfect credit.
Yes, consolidating credit card debt is possible, even with a low credit score. Some online lenders and credit unions offer personal loans specifically designed for debt consolidation, regardless of your credit score.
Credit unions often have more flexible lending criteria compared to traditional banks. They might offer personal loans or debt consolidation loans to members with bad credit at more favorable terms.
Online lenders often have a more streamlined application process and may have more flexible lending criteria. They can be a good option for those seeking a personal loan with bad credit, especially if traditional banks have declined your application.
The best debt consolidation loans vary based on individual circumstances. It’s essential to compare offers from multiple lenders, including online lenders, credit unions, and traditional banks, to find the best fit for your situation.
A home equity loan uses your home as collateral, which can offer lower interest rates. However, it’s essential to understand the risks. If you fail to make payments, you could lose your home. Always consult with a financial advisor before using your home to consolidate debt.
A nonprofit credit counseling agency can provide guidance on managing your debts, setting up a budget, and may offer debt management plans. They can be a valuable resource for understanding your options and getting personalized advice.
Don’t be discouraged. Consider reaching out to credit unions or online lenders who might have more flexible lending criteria. Additionally, a nonprofit credit counseling agency can provide guidance and alternative solutions.
Consistently making on-time payments, reducing your overall debt, and avoiding new debts can help improve your credit score. Regularly checking your credit report for errors and addressing them can also make a difference.
A Note From CreditNinja on How To Get Out of Debt With Bad Credit
When trying to find debt relief, consolidation is usually the best option. In fact, debt consolidation pays off for 69% of borrowers.2 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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