You’re not alone in feeling overwhelmed by debt, but it’s time to take control. When you’re broke, getting out of debt seems impossible, but there are strategies that can help.
You might be surprised by how much you can accomplish by simply negotiating with creditors or creating a bare-bones budget.
But that’s just the beginning. There are many more tactics to explore, from prioritizing high-interest debts to selling unwanted items online.
You’re about to discover a thorough plan that will help you escape debt and start rebuilding your financial future – and it starts with the 15 best ways to get out of debt when you’re broke.
At a Glance
- Negotiate with creditors to reduce debt or payments, and consider credit counseling services to facilitate conversations and provide guidance.
- Create a bare-bones budget that only includes essential expenses and track every single transaction to understand spending habits and cut back on unnecessary expenses.
- Prioritize debts by focusing on the highest-interest debt or the smallest balance first, and make the largest payment possible towards the targeted debt.
- Increase income by taking on a side hustle job or selling unwanted items online, and channel extra income directly towards debt repayment.
- Consider debt consolidation or refinancing options that offer lower interest rates or more favorable terms, and explore personal loans or balance transfer credit cards.
Negotiate With Creditors Now
If you’re overwhelmed by debt, it’s time to take a proactive approach and negotiate with your creditors.
Don’t wait for them to come to you – take the initiative and reach out to discuss possible debt forgiveness or reduced payments. Credit counseling services can also help facilitate these conversations and provide valuable guidance on managing your debt.
Be prepared to provide detailed financial information, including your income, expenses, and debt obligations.
This will help your creditors understand your situation and potentially agree to more favorable terms. You may be able to negotiate lower interest rates, waived fees, or a lump-sum payment that’s less than the original amount owed.
Create a Bare-Bones Budget
Financial freedom begins with a clear understanding of your spending habits.
You can’t create a plan to get out of debt if you don’t know where your money is going.
Start by tracking every single transaction you make for a month.
Write it down in a financial diary or use a budgeting app to make it easier.
Don’t worry about categorizing or judging your spending just yet, just focus on getting a clear picture of your daily habits.
Once you have a month’s worth of data, identify essential expenses like rent, utilities, and groceries.
These are the things you can’t live without.
Next, identify areas where you can cut back on unnecessary expenses like dining out or subscription services.
Be ruthless – if you don’t need it, cut it.
Create a bare-bones budget that only includes essential expenses.
This will be your foundation for getting out of debt.
Remember, this isn’t a permanent solution, but a temporary sacrifice to get back on track.
Prioritize High-Interest Debts
Now that you’ve created a bare-bones budget, it’s time to tackle the debt itself.
The next step in your debt-freedom journey is to prioritize your debts. You need to focus on the ones that are costing you the most money in interest. This is where debt prioritization comes in.
Start by analyzing the interest rates on each of your debts, from highest to lowest. Make a list of your debts, including the balance and interest rate for each one.
Then, sort them by interest rate, with the highest at the top. This will give you a clear picture of which debts are draining your finances the most.
Once you have your list, focus on paying off the debt with the highest interest rate first. This will save you the most money in interest over time.
Cut Expenses to the Bone
You’ve identified the debts that are draining your finances the most, and you’re tackling them one by one.
Now, it’s time to cut expenses to the bone. Living paycheck to paycheck is no longer an option. Adopting a frugal lifestyle mightn’t be the most glamorous thing, but crucial to debt freedom.
Start by tracking every single expense, no matter how small.
Write it down, log it on an app, or use a spreadsheet – just make sure you’re aware of where your money is going. This will help you identify areas where you can cut back.
Cancel subscription services you don’t use, cook at home instead of eating out, and find ways to reduce your transportation costs.
Sell Unwanted Items Online
Decluttering your living space can be a great way to raise some extra cash and accelerate your debt repayment journey.
You’re likely sitting on a goldmine of unwanted items that can be sold online. Identify items that are still in good condition but no longer serve a purpose in your life, such as gently used clothing, electronics, books, or furniture.
Take high-quality photos and write detailed descriptions to showcase your items in the best light.
Next, choose the right online marketplaces to sell your items. Popular options include eBay, Craigslist, Facebook Marketplace, and specialized platforms like Poshmark for clothing or Decluttr for electronics.
Develop selling strategies that work for you, such as setting competitive prices, offering bundle deals, or leveraging social media to promote your listings. Be realistic about the prices you set, and don’t be afraid to negotiate with potential buyers.
Take on a Side Hustle Job
While paying off debt, vitally, you must maximize your income, and taking on a side hustle job can be a lucrative way to do so.
This extra income can be channeled directly towards debt repayment, accelerating your journey to financial freedom.
Side gig opportunities abound, and you can capitalize on your skills to find a suitable fit.
If you’re a wordsmith, consider freelance writing platforms like Upwork or Freelancer, where you can offer your services to clients worldwide.
If you’re handy with tools, offer your services on TaskRabbit or similar platforms.
Even dog walking or house sitting can generate supplemental income.
The key is to identify your strengths and match them with in-demand services.
By committing a few hours a week to your side hustle, you can substantially boost your income and make meaningful progress on your debt.
Use Debt Snowball Method
The debt snowball method is a popular strategy for tackling debt, and for good reason: it’s simple, effective, and provides a psychological boost as you quickly eliminate smaller debts.
This approach involves prioritizing your debts by focusing on the smallest balance first, while making minimum payments on the rest. You’ll make the largest payment possible towards the smallest debt until it’s paid off, then move on to the next smallest, and so on.
Using the debt snowball method allows you to see progress quickly, which can be a powerful motivator.
You’ll experience a sense of accomplishment as you rapidly eliminate smaller debts, giving you the confidence to tackle the larger ones. By prioritizing your debts in this way, you’re employing a strategic debt prioritization that can help you stay focused and committed to your goal of becoming debt-free.
The snowball strategy is an effective way to build momentum and make progress towards financial freedom. By following this approach, you’ll be well on your way to breaking free from the weight of debt and achieving the financial independence you desire.
Consolidate Debt Into Loan
One effective way to tackle multiple debts is to consolidate them into a single loan, simplifying your financial situation and potentially saving you money on interest.
This approach, known as debt consolidation, allows you to combine multiple debts into one loan with a lower interest rate, making it easier to manage your payments. By doing so, you’ll have only one loan to focus on, making it less overwhelming and more feasible to pay off.
When considering debt consolidation, look into loan refinancing options that offer lower interest rates or more favorable terms.
You can explore personal loans, balance transfer credit cards, or debt consolidation loans from reputable lenders. Be cautious of fees and confirm the new loan has a lower interest rate than your current debts.
Communicate With Creditors
You’ve consolidated your debt into a single loan, but what about the creditors you still need to deal with?
Communicating with them is vital to getting out of debt. Reach out to each creditor and explain your situation honestly. Be prepared to provide financial information, such as your income and expenses, to demonstrate your inability to pay the original debt amount.
Be clear about your goals and the steps you’re taking to become debt-free.
Creditor expectations may vary, but most will appreciate your proactive approach. Some may be willing to work with you to find a solution, such as debt forgiveness or a temporary reduction in payments.
Others may require more negotiation, so be patient and persistent. Keep detailed records of all interactions, including dates, times, and agreements reached.
Build Emergency Savings
Having a debt repayment plan in place is crucial, but it’s equally important to build emergency savings to avoid going further into debt when unexpected expenses arise.
You never know when your car might break down or you’ll need to cover a surprise medical bill. Without an emergency fund, you’ll be forced to rely on credit cards or loans, which can quickly derail your debt repayment progress.
Set realistic savings goals for yourself, aiming to save $1,000 or three months’ worth of living expenses.
This will provide a cushion for unexpected expenses and help you maintain your debt repayment momentum. Adopt an emergency mindset, prioritizing needs over wants and cutting back on discretionary spending to free up more money for savings.
Consider setting up automatic transfers from your checking account to your savings account to make saving easier and less prone to being neglected.
Reduce Credit Card Expenses
How much of your hard-earned money is being swallowed up by credit card interest and fees each month?
It’s time to take control and reduce those expenses. Start by evaluating your credit card situation. Make a list of your cards, their balances, interest rates, and fees.
Identify the cards with the highest interest rates and prioritize paying those off first. Consider credit card swaps to lower-interest cards or ones with better rewards. You can also negotiate with your creditors to lower your interest rates or waive fees.
Look for interest rate caps or promotional rates that can save you money. Additionally, cut back on unnecessary expenses and allocate that money towards your debt. By reducing your credit card expenses, you’ll free up more money in your budget to tackle your debt.
Use Balance Transfer Offers
By leveraging balance transfer offers, you can substantially reduce the amount of interest you’re paying on your credit card debt and accelerate your journey to becoming debt-free.
This strategy involves transferring your existing credit card balance to a new credit card with a lower or 0% interest rate, typically for a promotional period.
- Research and compare balance transfer offers from different credit card issuers, taking into account the promotional period, balance transfer fees, and your credit score impact.
- Look for offers with the longest 0% interest promotional periods and lowest balance transfer fees.
- Make sure you can pay off the debt within the promotional period to avoid being charged high interest rates.
- Always read the fine print and understand the terms and conditions before applying for a balance transfer credit card.
Get a Debt Management Plan
If you’re struggling to pay off debt on your own, consider enlisting the help of a credit counselor to develop a personalized debt management plan.
This plan will help you identify areas where you can cut back on expenses, prioritize your debts, and create a realistic payment schedule.
A credit counselor can also provide you with debt counseling and credit coaching, helping you understand how to manage your debt and improve your credit score.
With a debt management plan, you’ll have a clear roadmap for becoming debt-free.
You’ll learn how to communicate with your creditors, negotiate lower interest rates, and consolidate your debt into one manageable payment.
A debt management plan can also help you avoid debt consolidation loans, which can often lead to more debt.
Increase Income Streams
As you work to eliminate debt, it’s vital to recognize that increasing your income streams can substantially accelerate the process.
By boosting your earnings, you’ll have more money to put towards your debt, allowing you to pay it off faster and regain control of your finances.
- Freelance writing: Offer your writing services to clients on freelance platforms or pitch article ideas to publications. This can be a lucrative way to monetize your writing skills and earn extra money in your spare time.
- Online surveys: Sign up with survey sites and earn money for sharing your opinions. While the pay mightn’t be high, it’s an easy way to earn some extra cash in your free time.
- Sell unwanted items: Declutter your home and sell items you no longer need or use. You can sell them online through platforms like eBay or Craigslist, or hold a yard sale.
- Part-time job: Consider taking on a part-time job to increase your income. This could be working as a server, babysitter, or dog walker – anything that can bring in some extra cash.
Automate Debt Payments
You’ve boosted your income streams, now it’s time to optimize your debt repayment strategy.
Automating your debt payments is a vital step towards achieving financial freedom. Set up payment schedules that align with your paydays, guaranteeing you never miss a payment.
This way, you’ll avoid debt triggers like late fees and penalties that can derail your progress.
To automate your debt payments, consider using automatic bank transfers or online payment services.
You can also take advantage of autopay discounts offered by some creditors.
By automating your payments, you’ll reduce the likelihood of human error and guarantee consistency in your debt repayment.
Create a payment schedule that prioritizes high-interest debts first, and allocate your funds accordingly.
As you make progress, adjust your schedule to tackle the next debt.
Automating your debt payments will give you peace of mind, allowing you to focus on other aspects of your financial recovery.
FAQs
Can I Still Get Out of Debt if I’m Unemployed?
Yes, you can still get out of debt even when unemployed; focus on aggressive job searching and debt snowflaking by selling items or using any spare change to chip away at your debt, no matter how small.
Will Debt Collectors Stop Calling if I’m Broke?
If you’re broke, debt collectors won’t stop calling just because you’re struggling financially. However, you can stop collection harassment by sending a written request, and they’ll have to cease contact, giving you some relief from the constant calls.
Can I Use Debt Settlement if I’m Not Behind on Payments?
You can consider debt settlement even if you’re not behind on payments, as it can lead to financial freedom through debt forgiveness, but be cautious of its impact on your credit score and explore other options first.
Do I Need to Include All Debts in My Debt Management Plan?
When creating a debt management plan, you’ll need to prioritize debts strategically, deciding which ones to include and how to allocate payments. Focus on high-interest debts first, then tackle smaller balances, to maximize your payment strategy and achieve financial freedom.
Will Getting Out of Debt Hurt My Credit Score Long-Term?
You’re wondering if getting out of debt will hurt your credit score long-term. The good news is that paying off debt typically improves your credit score over time, as it reduces debt-to-income ratios and shows responsible credit behavior, ultimately leading to a stronger credit impact in the long term.
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