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

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

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. 

CriteriaGood DebtBad Debt
PurposeInvests in your future, likely to generate income or increase in value.Primarily for consumption, doesn’t generate income or appreciates minimally.
ExamplesStudent loans, mortgage, business loansCredit card debt for shopping, payday loans, car loans for depreciating assets
Interest RatesGenerally lower interest ratesHigher interest rates
Tax BenefitsOften tax-deductible (e.g., mortgage interest, student loan interest)Rarely tax-deductible
Repayment TermsLonger, more flexible repayment termsShort-term, often with strict penalties for late payment
Credit ImpactCan improve credit score when managed wellCan quickly damage credit score if mismanaged
Financial GrowthPotential for ROI (Return on Investment)No ROI, can lead to financial strain
Risk LevelGenerally considered lower riskHigher risk due to high interest rates and fees
Emotional ImpactOften 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. 

CriteriaDebt SettlementDebt Consolidation Loans
PurposeTo negotiate and reduce the total debt owedTo combine multiple debts into a single loan
Impact on Credit ScoreUsually negative, as it involves not paying your debts fullyCan be positive if managed well
Time FrameTypically 2-4 yearsVaries based on the loan terms, often 3-5 years
CostFees for the settlement company, possible tax implicationsInterest on the loan, possible fees
Professional HelpGenerally involves hiring a debt settlement companyCan usually be done independently
Monthly PaymentsNo monthly payments to creditors during negotiationFixed monthly payments
Creditor HarassmentPossible, until settlement is reachedUsually stops once debts are consolidated
Legal RisksRisk of being sued by creditorsLower legal risks
AccessibilityNot all types of debt can be settledMost types of debt can be consolidated
Financial ControlLess control, as you’re relying on a third party to negotiateMore 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

What is a debt consolidation loan, and how can it help me with bad credit?

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.

How does my credit score affect my ability to get a debt consolidation loan?

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.

Can I consolidate credit card debt even if I have a low credit score?

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.

Are credit unions a good option for getting a loan with bad credit?

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.

What’s the difference between an online lender and a traditional bank when seeking a personal loan with bad credit?

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.

What are the best debt consolidation loans for someone with bad credit?

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.

Is a home equity loan a good option for debt consolidation if I have bad credit?

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.

How can a nonprofit credit counseling agency help me manage my 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.

If I’ve been declined for a personal loan due to bad credit, what are my next steps?

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.

How can I improve my credit score while working to pay off my debts?

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!


  1. The average American has $90,460 in debt │ CNBC
  2. Survey: Debt Consolidation Pays Off for 69% of Borrowers │ U.S. News
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