How to get rid of debt with bad credit

When you have debt and bad credit, you need some realistic options for tackling your financial situation. You could overcome the debt—and turn your credit score around—with the right plan and some dedicated effort. 

Even with less-than-perfect credit, you’ve got options for debt relief. Let's look at how to get rid of debt with bad credit and turn that overwhelm into excitement about your financial future.  

How can you get rid of debt with bad credit?

Bad credit could leave you with fewer options for dealing with debt. For example, you may not qualify for a debt consolidation loan, and budgeting alone might not be enough. You need bad credit debt help, which can include options like credit counseling, debt relief, or possibly bankruptcy. 

These debt relief solutions don't hold bad credit against you. For example, you don't need a good credit score to work out a debt repayment plan with a credit counselor or negotiate balances with your creditors. Bankruptcy looks at your debts, income, and expenses—not your credit. 

It's actually a relief to know that even though the solutions may not feel perfect or ideal, your bad credit isn't a barrier to doing something about your debt. Some of these options could even help you pay less than what you owe, so you can reclaim your life and ditch money stress.

Why bad credit makes paying off debt harder

Bad credit could be an obstacle to paying off debt in a few ways.

Say you've read about debt consolidation, and it sounds like a good idea. You apply for a debt consolidation loan, but the lender takes one look at your credit scores and labels you high risk. You can't get approved, or if you can, you're not saving much, if anything, on interest. 

Or, maybe you're too embarrassed by your bad credit score to explore options for paying off your debt. The idea of talking to a credit counselor or a debt expert, for example, may dredge up feelings of shame that you'd rather just bury. So your debt continues to be a problem, and your credit score doesn't improve either. 

Then there's the "why bother" factor. You might think that you're so far in the hole with debt already and your credit is bad, so why make the effort to try and dig your way out. We’ve got ways to overcome these common roadblocks. 

Getting ready to tackle your debt

Bad credit and debt repayment don't mix well, we understand. But here's something to think about. 

If you're reading this right now and are researching how to get rid of debt with bad credit, that's a sign that you still care about your finances. You might not know what your debt payoff plan is going to look like, but you haven't given up hope yet, and that's something to celebrate. 

You'll need a plan to pay off debt with bad credit, and help is available if you don't want to tackle it alone. Ready to go all in on improving your finances? Keep reading to learn how you could get rid of debt with bad credit, one actionable tip at a time. 

Steps to get rid of debt with bad credit

Before you launch into your debt repayment plan, take a deep breath. Picture yourself at the finish line with your debts paid and your credit on the mend. Now that you know where you want to go, you're ready to do the work to get there. 

Step 1: Assess your debts and finances

Taking a personal inventory of your financial situation can help you get a realistic view of where you are. Here's how to create an accurate snapshot of your finances. 

• List all debts clearly. Write down each debt you owe, including the name of the creditor, the amount due, the interest rate, and monthly payment. Add up each debt's balance to get one big number for what you owe.

• Review your budget honestly. Look at your budget and really scrutinize where every single dollar of your income goes. Ask yourself if you're doing everything you can to funnel as much money to debt each month as possible. If the answer is no, that's okay. You're acknowledging it, and that's what matters. (And if you're not keeping a budget or tracking your spending, let the Achieve MoLO app do it for you.)

• Separate essential vs. negotiable expenses. If you have some wiggle room in your budget, it's time to get real about your spending. Go through your expenses and separate them into things you need to spend money on to live, and things you can do without.

• Prepare for tough choices. Here's the part of getting rid of debt that a lot of people dread. It's the stage where you cut out anything you don't need, whether it's subscriptions, dining out, hobby supplies—all the extras. Will it be pleasant? No, but if it helps you find extra money to put toward debt, that can feel great. 

What if you've already done these steps and you're living on a tight budget that leaves little room for debt repayment? You stay calm and don't panic. Why? Because you still have options for how to get rid of debt with no money and bad credit. 

Step 2: Prioritize your debts realistically

When you have little money to work with and a pile of debt, you have to choose which debt to work on first. There are different ways to prioritize debts, but it makes sense to order them based on what could happen if you don't pay. 

For example, if you're late on credit card bills, then the worst that can happen is you get sued by your credit card company. If they win, they garnish your wages or bank account. That's pretty awful, but not as bad as losing your home if you fall behind on mortgage payments. 

If you're not sure how to arrange your debts, here's a breakdown of the worst-case scenarios for failure to pay. 

• Mortgage. If you don't pay your mortgage, your lender could eventually try to foreclose. If they succeed, you could lose your home.

• Car payment. Missed car payments can lead to a repossession, and you may still have to make good on the rest of the loan even if the lender takes the car back.

• Utility bills. When electric, gas, and water bills go unpaid, your service provider could cut you off. Your account could go to collections, and you might be sued. Even if your utility company doesn't sue, you could be barred from getting new accounts in your name or have to pay a large deposit to get services again in the future.

• Federal student loans. If you default on federal student loans, the IRS could garnish your tax refund, bank account, or even your wages. 

• Credit cards, personal loans, private student loans, medical bills. These types of debts are usually unsecured, which means there's nothing for a creditor to repossess or foreclose on. You could still be sued for these debts, and if you lose (and state laws allow it) a creditor could take money from your bank account or paychecks, or put a lien on a property you own. 

Step 3: Choose the right debt relief option for bad credit

Bad credit debt help is out there, and there are a few ways you might approach your debt situation. Here's an overview of each one to help you decide which option could be right for you. 

• Negotiating with creditors. If you're behind on credit cards, personal loans, or other unsecured debts, your creditors might be willing to cut a deal. You could try to negotiate to get them to accept less than what's owed and cancel the rest of the debt. You'll need to have some cash to negotiate with and pay your creditors. If you don't have a lot or any money saved, the next option might be a better fit. 

• Debt settlement programs. Debt settlement programs could help you get rid of debt without paying in full, and a debt expert does the negotiating for you. You make one monthly payment that's tailored to your budget into a dedicated account, which is used to pay your creditors once a settlement agreement is reached. You could get rid of your debts in as little as two to four years and potentially pay less than you owe. 

• Debt management plans. A debt management plan or DMP is a structured plan to pay off credit cards and unsecured debts. It won't reduce what you owe like debt resolution, but you could get fees waived or your interest rates reduced. You'll need a steady income and the cooperation of your creditors to make this repayment method work. You can talk to a credit counselor about what a DMP involves and whether it might fit your situation. 

• Bankruptcy. Chapter 7 bankruptcy is a legal way to get rid of eligible debts without paying. You might consider this route if you have little or no assets and have significant unsecured debts, like credit cards. Chapter 7 has strict requirements to qualify. Chapter 13 bankruptcy could be an option if you want to stop a foreclosure. It restructures your debt so you pay it off over three to five years. You may have the best outcome from bankruptcy if you work with a bankruptcy attorney.  

• Debt consolidation loans. A debt consolidation loan could let you borrow a lump sum of money that you can use to pay off other debts. That leaves you with just the single loan to pay off going forward. It sounds good, but if you have bad credit, you could have a harder time getting approved for a loan. And if you do get approved, the loan terms may not save you much money.

Step 4: Make your plan work

Once you decide on a plan for getting rid of debt, give yourself a pat on the back. You're already that much closer to your goal. 

Now, you've just got to stick with your plan. Here's how you could make it easier.

• Make budgeting a regular habit. Your budget may change from month to month, but you won't know how much money you have if you don't check it. Track your expenses and always be on the lookout for areas where you could cut back on spending. Also, pick a budget system that fits your life, whether it's the 50/30/20 budgeting rule, zero-based budgeting, or something else. A budget you can live with is a budget you can stick to. 

• Aim for consistency. Your debt payoff plan may feel smoother at some times than others. What matters is that you keep showing up, day after day, and do what you need to do to chip away at what you owe. Consistency is how you start to get results, whether it's a debt total that goes down or a credit score that starts to go up as you pay bills on time. 

• Get support. Trying to get rid of debt with bad credit has its ups and downs. On the down days, you need someone who can cheer you on and motivate you to keep going. Maybe you know a friend who's also trying to get rid of debt. You could agree to be each other's support squad. If not, look for a community online. For example, the r/debt community on Reddit is a place where you can share your debt story anonymously, get tips for paying it off, or just find inspiration to keep chugging along. 

How to avoid scams and predatory lenders

Here's one thing to know about trying to get rid of debt with bad credit: People will try to take advantage of you. 

Debt relief scams have been around for years, and while they've taken different forms, they all share the same goal of ripping you off. Here are some examples of scams you might run into in your debt payoff journey.

• A debt relief company tells you they can cut your debt in half, but first, they need you to hand over $1,000 to "reserve" their services. 

• You get an offer for a supposedly guaranteed approval debt consolidation loan, but the lender won't tell you the interest rate or fees until you sign off on the paperwork. 

• A car loan company tells you they can modify your loan so you won't lose your vehicle, but after you pay their fees, the lender disappears. 

Scams and predatory lenders can make your bad credit debt situation even worse. The best way to protect yourself is to do your research and trust your instincts. 

Look out for red flags, like a lender who dodges your questions or a debt resolution company that asks you for money before they do anything to help you. Requests for payment through unusual methods, like Venmo, Cash App, Zelle, or PayPal can also be a sign that a debt relief company isn't legit. 

How Achieve could help

At Achieve, we know what it's like to be stuck on the hamster wheel of debt and feel like there's no way out. It's our goal to help you turn those feelings of helplessness into action and regain control of your financial life. 

We offer solutions that are based on the details of your situation. Not sure what may be right for you? A free debt evaluation could be the first step to making informed decisions about how to tackle your debt. You'll get a personalized financial assessment, and if you decide to work with us, you'll always have the support of our team of Debt Experts. 

Get in touch today to learn how we could help you navigate a brighter path forward.