How To Get Out of Debt When You're Broke

You can get out of debt, even when cash-strapped, but it takes discipline, patience and careful planning. You also might need outside assistance from a lender, credit counselor, reputable debt relief company or bankruptcy attorney. Here's how:

Key Takeaways

• Getting out of debt when you're broke starts with knowing exactly what you owe. List every balance, minimum payment and due date, then direct any extra funds toward high-interest accounts or debts already in collections before they escalate.

• Stopping new debt is just as critical as paying existing balances. Freeze or lock your credit cards, avoid payday loans and cash advances, and cut non-essential spending to free up even small amounts for repayment.

• Free and low-cost resources can help without adding costs. Nonprofit credit counselors accredited by the NFCC or FCAA can negotiate with creditors and build a repayment plan, and government portals like USAGov's benefit finder can help you locate financial assistance.

• Contact your lender before missing payments. Many offer hardship programs, reduced rates or deferment options that can pause or lower payments temporarily without the severe credit damage that comes with debt settlement or bankruptcy.

• When there's no room in your budget, look for ways to bring in more income. Even small, irregular earnings from side gigs like delivery driving, freelancing or selling used goods can help accelerate debt repayment when paired with a disciplined payoff strategy.

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Step 1. Know What You Owe

Make a list of all your outstanding debts, including who you owe, how much you owe and each bill's due dates. Find out what debt collectors you owe, too.

You'll want to make your minimum monthly payments on all debts, so missed payments don't affect your credit. Prioritize any extra funds toward high-interest balances, urgent bills or debt in collections to avoid increased costs or worse, legal action being taken against you.

A free debt calculator or a spreadsheet can help you identify and create the best repayment plan.

Step 2. Stop Adding New Debt

Commit to controlling your debt by pausing credit card use, eschewing personal loans and new financing, particularly costly payday loans or cash advances, and setting spending limits on non-mandatory expenses.

Consider "locking" your credit cards or even freezing your credit temporarily to avoid temptation.

Step 3. Cut Costs Where You Can

Create a full budget, then identify non-essential expenses to pause or cancel.

"Once you establish the difference between a need and a want for everything you are currently spending money on, you will most likely find many areas where you can decrease your spending to free up money to pay down your debt," said Nancy D. Butler, Certified Financial Planner (CFP) and owner of Above All Else, Success in Life and Business.

Common ways to cut back include:

• Canceling streaming services or other unnecessary subscriptions

• Limiting take-out and food delivery

• Sharing living expenses with others, if possible

• Using community resources, like food banks or rent assistance programs, to subsidize non-discretionary spending

Step 4. Explore Free Credit and Debt Counseling

If debts continue to spiral out of control, consider seeking free or low-cost external assistance. Nonprofit credit counseling agencies offer help with budgeting, debt management, creditor negotiation and structured payoff plans for no or low charge.

Avoid debt relief scams by researching companies on reputable third-party platforms, asking about industry accreditations, and questioning upfront fees or guarantees.

Step 5. Start Earning — Even Small Amounts Help

"To pay off any significant debt, you typically have to have something leftover after necessary expenses and minimum debt payments," said Ashley Morgan, a debt and bankruptcy lawyer in Virginia. "If there is little leftover, then you typically have to find more money to pay down your debt. This can be done by increasing your income."

Top side gigs that require little startup capital include:

• Babysitting

• Dog walking

• Handy work

• Delivery driver jobs

• Freelancing

• Selling gently used goods

• Temporary second jobs

• Paid community work

4 Ways To Pay Off Debt With No Extra Money

1. Contact Your Lender

Many financial institutions offer hardship programs to borrowers experiencing severe financial distress. They may agree to lower your interest rate or waive fees for a short period, allowing you to pay high balances more quickly.

2. Request Paused Payments

Some lenders will also agree to deferment or forbearance, which allows for a pause in payments. Interest typically continues to accrue during forbearance, but not in deferment, although check with your lender, as some lenders use the terms interchangeably.

3. Try a Debt Management Plans

Nonprofit credit counseling agencies specialize in assessing your finances and negotiating with creditors to consolidate payments into one monthly bill you can afford. This service is known as a debt management plan and typically requires a one-time setup fee, as well as monthly fees, until you have fully paid off your debts, which usually takes between three and five years.

4. Use Tax Refunds or Cash Windfalls Wisely

Use debt repayment strategies, such as the snowball or avalanche methods, to maximize sudden financial gains.

What To Do if You're Drowning in Debt

If you're struggling with debt, consider the following debt-relief options.

Talk To a Credit Counselor

Nonprofit credit counselors offer free consultations and personalized financial advice on how to manage debt effectively. For a fee, they'll also negotiate with your creditors and set up a structured debt repayment plan.

Consider Debt Settlement or Bankruptcy

A debt settlement company tries to get your creditors to accept less than what you owe for a lump sum payment. They charge for this service, and there's risk involved as settlement companies typically advise you to stop making payments on loans during negotiations.

Bankruptcy is court-sanctioned debt relief that involves selling assets to pay off debt and get a fresh start. It's an option of last resort for people who owe large balances to multiple creditors.

Understand the Long-Term Impact on Your Credit

Debt settlement and bankruptcy can have a direct impact on your credit, and the consequences are often severe. Settled accounts appear on your credit report as such, and any missed payments or high balances preceding an agreement can hurt your credit scores, too.

Bankruptcy can cause an initial drop of up to 200 points. Plus, it stays on your credit report for up to 10 years.

Debt management programs, conversely, can indirectly affect your credit by skewing your credit utilization rate or shortening your credit history. However, they can help you establish a good payment history in the long term.

Free Tools That Can Help Right Now

Debt relief options, such as settlement and bankruptcy, can cost money. Fortunately, there are free tools available to try first if your debts start to overwhelm you.

• Budgeting apps: "Using only budgeting tools tends to be the best place to start," said Morgan. "Many will take your bank statements and credit cards to break down where your money is going each month." Free budgeting apps include Empower and Honeydue.

• Nonprofit credit counseling: These agencies offer free budget planning, debt counseling, and credit report reviews. Look for nonprofits accredited by the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA).

• Bill negotiation tools: Some apps, like Trim or Rocket Money, will find and cancel recurring subscriptions or even negotiate utility bills to help you save money. App access is typically free, with an up-charge for advanced features.

• Government help portals: Federal and state websites, like Benefits.gov or 211.org, can help you find free financial support or government benefits that can help in times of need.

How To Choose Between Debt Relief Options

Key Terms

• Debt avalanche method: A DIY repayment strategy where you make minimum payments on all balances and direct any extra funds toward the debt with the highest interest rate first. Once that balance is cleared, you roll the payment to the next highest-rate debt — reducing total interest paid over time.

• Debt snowball method: A DIY repayment strategy where you focus extra payments on your smallest balance first, regardless of interest rate. Clearing small debts quickly can build momentum and motivation to stay on track.

• Deferment: A lender-approved pause in loan payments during which interest typically does not accrue on the paused balance. Terms vary by lender and loan type, so confirm details directly with your servicer.

• Forbearance: A temporary lender-approved pause or reduction in loan payments, similar to deferment — but with one key difference: interest typically continues to accrue during the forbearance period, increasing the total amount owed.

• Hardship program: A lender-offered relief option for borrowers in severe financial distress that may include reduced interest rates, waived fees or paused payments for a set period. These programs are usually requested directly by the borrower before an account goes into default.

• Nonprofit credit counseling agency: An accredited organization that provides free or low-cost budgeting advice, debt counseling and — for a small fee — debt management plan administration. Look for accreditation through the NFCC or the Financial Counseling Association of America (FCAA).

• Debt settlement: A strategy where a negotiator — typically a for-profit company — attempts to convince creditors to accept less than the full amount owed. It can damage your credit score and may carry tax implications on any forgiven balance.

• Bankruptcy: A court-administered debt relief process that can discharge certain unsecured debts. Chapter 7 involves liquidating non-exempt assets; Chapter 13 establishes a three- to five-year repayment plan. It's a last resort — bankruptcy can cause an initial credit score drop of up to 200 points and remain on your credit report for up to 10 years.

Sources:

• FTC: How To Get Out of Debt

• CFPB: What is the difference between credit counseling and debt settlement, debt consolidation, or credit repair?

• NFCC: Nonprofit Credit Counseling Services

• USAGov: Find Government Benefits and Financial Help

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FAQs

Can I get out of debt without paying everything I owe?

There are debt relief options, including debt management plans, debt settlement and bankruptcy, that can help you get out of debt for less than what you currently owe. However, these options have risk — namely, you damage your credit score and incur fees for financial and legal services.

What if I can't afford any payments at all?

If you can't afford loan payments, consider more extreme debt relief solutions, like a debt management plan, debt settlement or bankruptcy. Note that these options can often cause damage to your credit score and your ability to obtain future financing.

How do debt management plans work?

Debt management plans are set up by nonprofit credit counseling agencies. They negotiate with your creditors to combine your debts into one affordable monthly payment. You send this payment, along with a small fee, to the agency, which disburses it to your creditors throughout the plan's term.

Will debt collectors stop calling if I use a counselor?

Debt collectors who agree to your credit counselor's debt management proposal usually cease or at least slow calls and other collection efforts, though they're not bound to do so.

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