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

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. 

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:

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.