Getting Out of Debt With Bad Credit is Possible – Here’s How

If you don’t have much cash to spare and your credit score is low, paying off debt may seem like a faraway fantasy — but it’s possible.

Updated May 13, 2024
Fact checked

We receive compensation from the products and services mentioned in this story, but the opinions are the author's own. Compensation may impact where offers appear. We have not included all available products or offers. Learn more about how we make money and our editorial policies.

We’ve all got financial regrets, and there’s a good chance that one of those regrets has to do with debt.

In fact, 47% of Americans regret taking on credit card debt in the last year. And, of course, paying down debt is consistently one of the top financial resolutions we make at the beginning of each year.

Dealing with debt can be a daunting task — especially if you’ve got bad credit. It can feel like the problem will never end. The good news, though, is that you can beat debt.

Let’s take a look at how you can finally destroy that debt, no matter what your credit history looks like.

In this article

How much debt do you have?

Your first step is to be brutally honest about your situation. Realize, though, that you don’t need to have a ton of shame. You’re not alone. According to the New York Fed, total household debt continues to rise, and credit card balances rose by $14 billion in the second quarter of 2018 alone.

So, look at your own share of that debt. Tally up what you owe, listing out all your accounts and their balances, along with the interest rate. Write down your minimum payment for each debt.

If you need help figuring that out — perhaps you’re afraid some of your accounts are in collections — go to Credit Sesame or and access your credit report. It should list your debts. Compare what’s listed in your history to what you’ve got listed from your own information.

How much can you afford in debt repayment each month?

Now, look at your monthly income. How much of your income each month goes toward minimum debt payments? How does it impact your other expenses? Also, what other costs do you have?

Chances are, in addition to making debt payments, you also have other costs, including:

  • Housing
  • Utilities
  • Insurance
  • Groceries
  • Entertainment
  • Car-related costs
  • Clothing
  • Kids

Take a look at your bank and credit card statements from the previous two months. This will give you an idea of where your money is going. Do your best to identify places where you can cut back on unnecessary spending.

The key is to own up to it in your own finances, reduce the amount you spend on unnecessary items, and divert that money toward helping you pay down your debt.

Chances are, you can find a spare $100 or $200 a month to put toward debt reduction once you take a hard look at where your money’s been going.

Create a debt repayment plan

Once you’ve got an idea of how much extra you can put toward debt repayment each month, it’s time to make a plan.

Most debt repayment plans focus on tackling your debts one at a time. You make your minimum monthly payment on all your accounts, with the exception of one. That one balance gets the extra money in your budget designed for debt reduction.

Once you pay off your first debt, you take everything you’ve been paying and transfer it to the next balance on your list.

Let’s take a look at how that works:

  • $2,000 credit card, minimum payment $60
  • $5,000 credit card, minimum payment $150
  • $13,000 auto loan, payment $200

If you decide you can put an extra $150 toward debt reduction, start with your smallest debt. You keep making your payments on the other debts, but now you’re paying $210 on your first credit card (60 + 150).

Once you get that paid off, you shift the entire $210 to the next debt on your list. In this case, now you’re putting $360 toward the second debt. As you go along, your paydown rate accelerates — without the need for you to put extra money toward debt reduction if you don’t want to.

You’ve already got your debts listed out, and you know the interest rates. With the debt snowball, you focus first on the debt with the smallest balance. For the avalanche, though, you begin with the most expensive debt — the balance with the highest interest rate.

Is the debt snowball or debt avalanche better?

Scientifically speaking, the debt avalanche method offers the best results. You’ll spend less money overall and get out of debt faster by taking this route.

However, psychologically speaking, it can be disappointing. Your first win comes later, and it can be hard to keep going when you feel like progress is so slow.

With the snowball method, you can see a quick win by demolishing your small balance first and getting that motivational jolt to keep going.

The reality is that it doesn’t matter which method you use as long as you’re making progress. It’s ok to use the debt snowball if you know it’s going to be more sustainable for you and get you over the finish line.

Plus, as you move forward and see results, you might be encouraged to look for even more waste in your finances. You might boost your monthly debt repayment amount and move even faster through your balances.

Bad credit doesn’t matter when following a basic debt repayment plan

What’s great about following these steps is that it doesn’t matter what your credit situation is. As long as you keep making your minimum payments on time and follow your plan, it doesn’t matter where your credit stands.

In fact, you might even improve your credit because you will be making on-time payments and reducing the amount of debt you owe.

What’s difficult with bad credit is that it can be more challenging to take advantage of tools that can help you move up your timetable. With bad credit, you might have a harder time getting a low-rate balance transfer credit card or getting a low-rate consolidation loan. (Check out our list of the best balance transfer cards for more information.)

But that doesn’t mean all hope is lost. You’ve still got options to help you tackle your debt — even if you feel like it’s completely overwhelming your life.

What is a “bad” credit score?

While there are many different credit scoring models, the most popular is your FICO score. A FICO score ranges from 300-850, with 850 being perfect.

Score Rating
800-850 Exceptional
740-799 Very Good
670-739 Good
580-669 Fair
579 and below Very poor

A bad credit score can come from many different places:

  • Missed payments. Your payment history makes up 35% of your FICO credit score. The more on-time payments you have, the better. But continuously paying bills late or flat-out missing payments can cause your score to plummet.
  • High credit usage. How much you debt you owe compared to your credit limit, also known as your credit utilization ratio, makes up 30% of your credit score. If you’re constantly carrying high balances on your card or consistently coming close to maxing out your card, your credit score could be negatively affected — even if you pay off your balance every month.
  • New credit. If you’re just starting out your credit journey, your score may be low. This is because you haven’t had an established credit history long enough to showcase your creditworthiness.

Having a bad credit score can disqualify you from buying a home, car, or getting a credit card. Sometimes, your low credit score could even prevent you from qualifying to rent a place to live.

Can I get a debt consolidation loan with poor credit?

One of the best tools to manage your debt and pay it off is a debt consolidation loan. With this type of loan, you get a new, bigger loan and use it to pay off your other debts. Many personal consolidation loans are unsecured, meaning you don’t need to put up any collateral to make it happen.

Depending on where you stand with your credit, you might still be able to get a debt consolidation loan, even when your credit’s bad.

There are companies that will loan you money, but you have to be prepared to pay a higher interest rate. If you’re dealing with payday loans and high-interest credit cards, even a high-interest rate debt consolidation loan might be an improvement over your current situation. However, you do have to pay for this service. Some non-profit credit counseling agencies offer help for a lower charge than other companies, but you should expect to pay fees in some capacity. 

If you can’t get a loan from a traditional bank, you might be able to find an online resource or even use P2P lending to consolidate your debt. 

Another option is to get a secured loan. With this type of loan, you might pledge your car or another item of value. The downside to this approach is that you could lose your asset if something happens and you can’t make your payments.

If your credit is bad and you can’t get an unsecured loan, think twice before using a secured loan. You might not want to take unsecured credit card debt and tie it to something you need.

Types of loans to avoid if you have bad credit

It’s true that a home equity loan or a retirement account loan can help you consolidate your high-interest debt and pay it off. However, you’re taking a big chance with these types of debt consolidation attempts.

You might lose your house or you could put your future at risk. In many cases, your home and your retirement accounts are protected when creditors come looking for repayment. If you tap into them to pay off your debts, you could wind up in even worse shape down the road.

There are other, less risky, things you can do to reduce your debt.

Is debt relief with bad credit an option?

When you have bad credit, a debt relief company might be able to help you move forward. 

These debt settlement programs generally follow this protocol:

  • You choose which debts to enter into the program
  • The debt relief company helps you figure out how much you can pay each month
  • You stop making payments on your debt, and instead send the money to the debt management company
  • Creditors are likely to close your accounts and may even sell them to collections companies
  • When bill collectors call, you refer them to the debt relief company
  • The debt relief company uses the lump su, you send them to negotiate terms with your creditors
  • Over time, your debt is settled or paid off according to the terms agreed on between the debt management company and your creditors

These programs usually come with fees, so be prepared to pay them. You also want to check to make sure you’re using one of the best debt consolidation companies. There are a lot of scams out there, and you don’t want to be left with nothing.

When you enroll in a debt relief program, you can expect to see your credit score drop even further. However, if you’ve already missed payments and in you’re in a rough spot, it might not matter as much. The important thing is to get on top of the situation and move forward.

In fact, once your creditors come to an agreement, and as long as you fulfill the terms of your debt repayment plan, you can start seeing an improvement in your credit. As accounts are paid off, and you practice good habits going forward, you can recover your score along with getting out of debt. But it might take two or three years to start seeing that improvement.

What if I have bad credit and no money — can I still get out of debt?

At some point, you just can’t cut any more from your budget. Maybe you’re in a tough spot and struggling to make ends meet, nevermind the debt. How do you move forward when you have bad credit and no money?

There are a few strategies and debt relief options that can help you, even in a situation like this.

Be realistic about what needs to be paid

Sometimes you need to prioritize your bills. If you’ve got a mortgage payment and you need to keep the house, that’s the bill you pay — even if it means skipping a credit card payment.

While it’s not ideal to miss bills if your credit is already bad, missing more payments until you get back on your feet isn’t going to make a huge difference.

Look for a side hustle

If your main issue is solving the no money side of the equation, you can start a side hustle. You might be surprised at some of the legitimate ways to make money.

Use that extra money to fuel your basic debt repayment plan, no matter how low your credit score is. Once you have a little extra coming in, you can pay your bills on time, start reducing your debt, and see an improvement in your credit score.

Talk to your lenders

To get out of debt, you must acknowledge you have it; reaching out to your lenders is a good beginning. Whether it’s student loans, personal loans, or credit cards, it’s important to ask your lenders to work with you on a repayment plan that’s best for both of you. It shows you’re committed to working with them to pay back what you owe.

Before calling, review your budget to see what you can realistically afford to pay every month. When you call, have that number handy. It shows your lender you’ve done your research and you are ready to start your journey to becoming debt-free.

Ask about a hardship payment plan

Some credit card issuers may offer hardship payment plans for those who need some extra help. If you have many different credit cards and hold massive debt with them all, you’ll need to reach out to each of them individually to set up many different plans.

Hardship payment plans vary based on each lender, but they may offer a few different ways to lessen your burden, such as:

  • Smaller minimum payments
  • Lower fees or specific fee removal
  • Lower interest rate
  • Certain payment schedule

Negotiating a hardship plan is a good way to start paying back your debt. Talk to your lender about how participating in the plan could impact your credit score.

Consider debt settlement

As discussed, debt settlement can be one way to create a debt management plan. Focus on using reputable credit counseling agencies to help you make a plan and improve your finances or even settle your debt for less than you owe.

Good debt settlement companies will talk to you about your circumstances and craft a program that you can afford, no matter your budget. Do your best to find a good credit counselor who can help you in person, sit down with you, help you organize your money management efforts, and identify places where you can improve.


Finally, bankruptcy is an option. When you’re in a desperate circumstance with bad credit and no money, sometimes this can be a way to help you reset your finances and work toward a better future.

Depending on the type of bankruptcy protection you receive, you might actually end up with a clean slate (Chapter 7) or you might have to come up with a payment plan (Chapter 13).

Either way, though, you pay less than you owe, and you have a chance to start over again without debt. Be careful with this option, though. Even though the effects of bankruptcy fade over time, it can still be on your credit report for between 7 and 10 years.

Be careful with your fresh start

While on your journey to figuring out how to pay off debt, make sure you pay attention to your financial habits.

Sometimes that means acknowledging where you might have gone wrong. Know your mistakes and change your habits. It might mean looking for ways to shore up your finances so that if you experience a money shock (like a job loss or health problem), you’re better able to absorb it without going into as much debt.

As you’re honest with yourself and work on your general financial situation, you’ll be able to get out of debt, improve your credit, and build the future you want.

National Debt Relief Benefits

  • No upfront fees1
  • One-on-one evaluation with a debt counseling expert
  • For people with $30,000 in unsecured debts and up

Author Details

Miranda Marquit

Miranda Marquit has covered personal finance for more than a decade and is a nationally-recognized financial expert and journalist, appearing on CNBC, NPR, Forbes, Yahoo! Finance, FOX Business, and numerous other outlets.

Author Details

Dori Zinn

Dori Zinn is a personal finance journalist with work featured in Huffington Post, Quartz, Wirecutter, Bankrate, Credit Karma, and others. She loves helping people learn to be better with money.