How to get rid of debt with bad credit, step by step

By Rebecca Lake

Reviewed by Keith Osmun

Jun 21, 2023

Read time: 4 min

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Key takeaways:

  • Bad credit doesn't have to be a barrier to getting rid of debt. 

  • Some options for getting rid of debt with bad credit include debt management plans, debt resolution, and bankruptcy. 

  • Weighing the pros and cons can help you find the right debt repayment plan—and stick to it. 

Sometimes it feels like only money will solve your debt problems, and to get that money you need credit. Frustrating, but a myth. The truth is, you don’t need good credit to solve your debt problems, and you might need less money than you think. 

Being in debt is tough, and with bad credit, you may have fewer options for getting back on your feet. But when one door closes, another can open. If you're ready to get rid of debt for good, here’s a step-by-step guide that might help you save time, money, and stress. 

Step 1: Assess your debts and finances

Paying off debt might be your end goal. But first, you have to know where you're starting. 

List your debts

Take a personal inventory of your finances. Get some perspective on how far you are from the finish line—and what you'll need to do to get there. 

Make a list of your debts. You can do this on paper, or you can use a debt paydown app to get a complete view of your debt. On your list, include the:

  • Name of each creditor you owe

  • Amount owed to each debt

  • Interest rate and APR for each debt

  • Minimum monthly payments

  • Amount you're‌ paying

If it's your first time seeing all the numbers in black and white, it might seem more than a little overwhelming. But remember that getting real about what you owe means you're already moving in the right direction.  

Review your budget

Next, take a look at your budget. Your budget is your plan for how you'll spend the money you make each month. 

Going over your budget is essential to getting rid of debt with bad credit. Knowing how much money you have to work with each month makes it easier to decide how to approach debt payoff. What you do with your money is always your choice. If you decide to spend less on something so that you can put more money toward your debts, try to think of it as a gift, not a sacrifice. It’s a conscious choice to do something with your dollars that'll make you happier in the long run.

If you're not keeping a budget or tracking your spending, let the Achieve MoLO app do it for you. MoLO is a money management app that helps you create ways to have more money left over each month so you can make more progress toward your goals.  

Step 2: Prioritize your debt

Debts aren't all the same, which is important to remember when you're trying to get rid of debt with bad credit. Prioritize your debts. Knowing which ones you want to focus on first can help you shape your plan. 

Your payoff priority list might look like this, starting with the most important:

  • Credit cards

  • Unsecured loans

  • Auto loans

  • Medical bills

  • Student loans

  • Mortgage debt

Putting credit card debt at the top makes sense if your cards have a much higher interest rate than any of your other debts. Those cost you the most, so the sooner you get rid of them, the more money you can save. Medical bills, meanwhile, might be lower on the list since you might not be paying any interest on them. 

Of course, how you rank your debts is entirely up to you. Take some time to determine which ones you want to tackle first before moving on to the next step. 

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Step 3: Find a debt payoff plan for bad credit

You've crunched all the numbers and know what you owe. Now it's time to figure out how you'll pay off your debts. 

What do you look for in a debt repayment plan?

Affordable monthly payments are always a consideration. Choosing a debt repayment plan you can't afford probably won't work, and it'll just frustrate you. 

You might also be looking for ways to cut down on what you pay in interest and fees. And the money saved can always go toward other goals. 

With that in mind, here are three options for getting rid of debt with bad credit. 

  • Resolve debts. Debt resolution is when you negotiate with creditors to accept less than you owe to settle your debt. You can do it yourself or hire a professional debt resolution company to help you.  

  • Debt management plan. A debt management plan is a structured plan for repaying all of your debt. A credit counselor manages the plan. You make a monthly payment to the plan, and the counseling agency distributes the money to your creditors.

  • Bankruptcy. Bankruptcy is a legal process for getting out of debt. Chapter 7 gives you a clean slate, but you may have to sell some of your assets to pay back your creditors. Chapter 13 lets you make a fresh start after you complete a three-year or five-year payment plan, and you might not have to give up your assets. 

Which one is better? They all have their pros and cons. Here's a quick look at who might be a candidate for each strategy:


Who it might be right for

Debt Resolution

People who can’t afford to repay all of their debts and who can’t or don’t want to file for bankruptcy

Chapter 7 Bankruptcy

People with unsecured debts (like credit cards), and little or no assets

Chapter 13 Bankruptcy

People who can afford a monthly payment and don’t want to lose their assets

Debt Management Plan

People who are willing to stop using credit and commit to an aggressive, supervised payoff plan

Step 4: Making your plan work

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

Now, you've just got to stick with your plan. 

  • Avoid applying for new credit or taking on additional debt unless necessary.

  • Get support from friends, family, or a financial advisor if you need help staying accountable and following your plan. 

And if you've gotten to the end of this guide and you still don't have a clear idea of how to get rid of debt, you can do one more thing. You can get a free debt assessment to find out if debt resolution might be right for you.

Rebecca Lake - Author

Rebecca is a senior contributing writer and debt expert. She's a Certified Educator in Personal Finance and a banking expert for Forbes Advisor. In addition to writing for online publications, Rebecca owns a personal finance website dedicated to teaching women how to take control of their money.

Keith Osmun

Keith is an editor and fact-checker for Achieve. He makes sure the content is accessible by ensuring that each piece has impeccable grammar, an approachable tone, and accurate details.

Frequently asked questions

Rebuilding credit after paying off debt starts with making on-time payments on your bills. You can also rebuild credit by maintaining low balances on credit cards, limiting how often you apply for new credit, and keeping older accounts open. Becoming an authorized user on someone else's credit card is another way to boost your score.

Yes, you can. It’s called debt resolution. Whether your creditors are willing to settle depends on how much you owe, how much you offer, and how delinquent you are in making payments. Working with a debt resolution company can make it easier to negotiate and get the best settlements possible.

First, understand that the debt resolution program itself doesn't affect your credit score at all. The things that hurt your credit score are late payments, collection accounts, high balances on your credit cards, and “significant derogatory events.” Those would be things like bankruptcy, foreclosure, judgments, and so on. 

If your accounts are already in collections, your score might not change much after you start a debt resolution program.

The situation is different if your accounts are current. Creditors aren't likely to reduce your debt if they believe you can pay it. You'd need to show that you have a financial hardship and can’t afford to keep up. It’s always your choice to pay your bills or stop making payments, but debt negotiations are usually more successful after you haven’t made payments for a while. So if you start a debt resolution program and stop paying your bills, your credit score could fall significantly. Over the long run, your score can recover as you pay down what you owe. 

The debt you’re carrying around is a big component of your credit score. By focusing on dealing with your debt, you can give your credit score a chance to improve naturally. Positive credit score changes will be your well-deserved reward for improving your financial situation.

Debt consolidation can make managing debt easier if you have just one monthly payment. However, consolidating debts doesn't always work if you're charging up new balances on your credit cards. In that case, you could have more debt than you started. Also, to get a debt consolidation loan, you’ll need at least a fair credit score.

If you're unable to maintain your debt repayment plan, it's a good idea to contact your creditors. They may be able to offer solutions for managing debt that can help you avoid any serious credit score damage. 

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