How to Get Out of Debt When You Have No Money

Two actions can get you out of debt: reducing the amount you owe and increasing your payments. If you are on a limited budget, you may have to cut back on your expenses, even if your income is already stretched. You have the power to negotiate with creditors and get a better deal. You can reach out for help.

Go Back To Basics

Financial expert Dave Ramsey recommends focusing on the "four walls" of necessary spending. Anything beyond these core expenses goes toward paying down debt. Remind yourself that only these four are what you need to live and to see a future beyond debt.

  • Food
  • Shelter
  • Clothing
  • Transportation

Anything beyond those fundamentals are best applied to debt reduction. It may be painful, but getting rid of debt eventually frees up cash for everyday living.

Limit Your Spending

Within those "four walls," there are options to cut back and find money for debt payments. Lisa Aberle at Get Rich Slowly says to take a hard look at where your money goes. Even if you think you've got nothing to cut, you may have room to take the necessary drastic steps.

  • Reduce housing costs. If you own, rent out a room to a tenant. If you don't own your home, accept free rent from a friend or relative until you pay off your debt. Get a roommate if you live on your own.
  • Trade in your car for public transportation. You might enjoy your workplace commute without having to deal with the stress of driving or the annoyances of traffic.
  • Use loyalty programs and coupons. You can stretch your grocery budget considerably by choosing no-name brand products, collecting points at retailers and buying what's on sale.
  • Switch to cloth diapers. It will save the environment for your child and cut your costs.
  • Turn down the heat and air conditioning. You can compensate for a few degrees with proper clothing, while cutting your energy costs. Check out these energy-saving tips from the University of Oregon.

In short, look for any opportunity to save. Track those savings and apply them to your debt payments.

Reduce What You Owe

Freeing up cash is only one part of the debt-reduction equation. The other part is reducing your debt total. If you have several credit cards, Aberle recommends transferring the balance of all to the one with the lowest interest rate. Stop using the cards.

Ask your creditors to give you a better deal. They may lower your interest rate or change your payment frequency so you can pay off your debt quicker. For example, a bi-weekly payment can get you out of quicker than a monthly payment because there are 26 payments per year, or the equivalent of 13 monthly payments. A loan calculator can help you to assess if this option works for you.

Ask An Expert

You don't need to do it all on your own. Consider speaking with a credit counselor. He will help you to develop a budget and manage your debt. Credit counselors operate out of not-for-profit organizations. They may charge a fee for the service, but the educational value of meeting with a counselor can help you pay off debt and get into better financial shape.

Note that credit counselors and debt settlement companies are different. Debt settlement companies are for-profit enterprises. A debt settlement company may help you to settle your debt while a credit counselor may help you reach payment agreements with your creditors. The Consumer Financial Protection Bureau has detailed information about the differences between the two so you can choose what is best for you.

Don't lose hope. As Aberle says, you may have to "challenge your comfort zone," but it will be worth it to get out of debt.