Budgeting Managing Your Debt 10 Ways to Pay Off Debt When You're Broke By LaToya Irby LaToya Irby Facebook Twitter LaToya Irby is a credit expert who has been covering credit and debt management for The Balance for more than a dozen years. She's been quoted in USA Today, The Chicago Tribune, and the Associated Press, and her work has been cited in several books. learn about our editorial policies Updated on June 1, 2022 Reviewed by JeFreda R. Brown Reviewed by JeFreda R. Brown Facebook Instagram Twitter JeFreda R. Brown is a financial consultant, Certified Financial Education Instructor, and researcher who has assisted thousands of clients over a more than two-decade career. She is the CEO of Xaris Financial Enterprises and a course facilitator for Cornell University. learn about our financial review board In This Article View All In This Article Create a Budget Broke or Overspent? Put Together a Plan Stop Creating Debt Look for Ways to Cut Your Expenses Increase Your Income Ask for a Lower Interest Rate Pay on Time and Avoid Fees Consider Consumer Credit Counseling Take It One Step at a Time Frequently Asked Questions (FAQs) Photo: Caia Image / Getty Images Getting out of debt isn’t easy for anyone, but it’s an even tougher feat if you don't have much money to spare. You can pay off debt when you’re broke, but not without making some financial changes first. Here are 10 ways you can get it done. Create a Budget A budget will help you make better decisions about your money and give you an idea of how much you can afford to put toward your debt each month. Don't try to manage your expenses in your head; seeing the numbers on paper lets you see the bigger picture without relying on your memory. Your budget can also help you decide where you might be able to free up money for paying down your debt. Distinguish Between Broke and Overspent Are you using “broke” to describe what happens after you’ve spent all your money on nonbills and nonessentials? If so, you’re not really broke. You can make some changes to how you spend to create some extra room in your budget. If you really have no money, don't make it worse by making bad decisions—such as spending on things you don't need. Put Together a Plan Paying off your debt should always start with a plan, no matter how much money you have—and even if you can't start paying on your debt right away. Start by listing your debts along with the balance and interest rate. Prioritize your accounts, noting the order you want to pay them off, for instance, highest interest rate debt first, lowest balance first, or another order. The plan is to pay as much as you can afford on one account while paying the minimum on all the other accounts. Ideally, you’ll find ways to free up more cash in your budget (more on that below), but to start, work with what you have. Stop Creating Debt You’ll never get out of debt if you’re continually adding to your balances. Put your credit cards in a drawer—or even freeze them in a block of ice—but don't close the accounts because that will hurt your credit score. Don’t apply for any more loans so you don't have the ability to create additional debt. New debt increases the payments you have to make, which creates additional strain on your monthly income. It’s tough to live without credit cards when you've got no money, but if you’re serious about getting out of debt, it's critical that you find a way to live on your income. Look for Ways to Cut Your Expenses Don’t guess about it. Review your monthly bank statements to see where you’re spending money each month. For each purchase, ask yourself seriously whether this is an expense you can live without. Remember, you’re not cutting costs just for no reason at all. You’re doing it so you can get out of debt. It’s a worthy goal. You may have to make some temporary sacrifices, but you can add expenses back after you're debt-free if you decide those expenses are worth it. Increase Your Income Making more money accomplishes two goals. First, you’ll no longer have to rely on your credit cards to make ends meet. Second, you’ll have more money available to put toward your debt. You can increase your income by taking on a second job, doing freelance work, selling things on eBay or Craigslist, making money from a hobby, doing odd jobs, or starting a small business. Ask Your Creditors for a Lower Interest Rate A high interest rate makes it harder to pay off your debt because more of your monthly payment goes toward interest charges. Lowering your interest rate reduces the monthly interest you pay and allows you to pay off your debt faster. A good credit score and positive payment history give you more leverage toward getting a lower interest rate. If your credit card issuer won’t budge, consider transferring your balance to a credit card with a lower interest rate. Taking advantage of a 0% balance transfer offer is even better. Pay on Time and Avoid Fees Late payments slow down your debt pay-off progress. You’ll have to double up on payments next month plus pay a late fee—money that could have reduced your balance. Plus, two late credit card payments in a row will trigger the penalty rate, which will also make it tougher to pay down your debt. Consider Consumer Credit Counseling A credit counseling agency can work with you to review your finances and figure out a budget that can include monthly debt payments. If you can’t afford your debt payments, the credit counselor will try to work out a debt management plan (DMP) with your creditors. The DMP will often include lower monthly payments to your creditors, and you might make one monthly payment to your credit counselor who will then distribute payments to each of your creditors. If your situation and ability to pay off debts is more complicated, you could consider seeking assistance from a debt relief program. Pursuing debt settlement is a last resort because it involves stopping payments and working with a firm that holds that money in escrow while negotiating with your creditors to reach a settlement, which can take up to four years. Withholding payments from your creditors can seriously damage your credit score. Take It One Step at a Time Looking at your total debt picture can be overwhelming, but remember that you're not going to tackle it all at once. By concentrating on one debt at a time, your debt repayment process will be more effective. Track your progress, celebrate your successes, and keep chipping away until your debt is completely paid off. Frequently Asked Questions (FAQs) How does a balance transfer work, and what are the disadvantages? A balance transfer involves moving the balance you owe on one credit card to another card. It can be helpful if you can lower your interest rate, and some lenders do offer low interest rates on transfers or even zero interest. The catch is that the rate can increase to more than what it was on the old card after a limited period of time. You may be charged fees by the new lender as well, which could negate your savings. How long does it take to pay off a credit card by making minimum payments? It depends on how much you owe. Federal law has required lenders to provide this information on borrowers' statements since 2010. They must tell you how many months you'll have to make those minimum payments, based on the assumption that you will make no further charges, and how much you'd have to pay monthly if you wanted to retire the debt in three years. What happens if I file for bankruptcy? There are two primary types of bankruptcy for individual consumers: Chapter 7 and Chapter 13. Your debts are "discharged" if you file for Chapter 7 relief. They effectively just go away, but you have to qualify, the court might order that some of your assets be sold so the money can go to your creditors, and your credit history and score will take a severe hit. Chapter 13 involves repaying a portion of your debts over three to five years. Any balance that remains is discharged. That, too, will damage your credit score, but you'll be able to retain possession of your property. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Consumer Financial Protection Bureau. "Credit Cards Key Terms." Board of Governors of the Federal Reserve System. "What You Need to Know: New Credit Card Rules," Page 1. Federal Trade Commission. "Debt Relief or Bankruptcy?"