10 Ways to Pay Off Debt When You're Broke

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Getting out of debt isn’t easy for anyone, but it’s an even tougher feat for someone who doesn’t have much money to spare. You can pay off debt when you’re broke, but not without making some financial changes first.

1.​ Create a budget if you don’t already have one. 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 having to rely on your memory.

2. Make the distinction between broke and overspent. Are you using “broke” to describe what happens after you’ve spent all your money on non-bills and non-essentials? 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 are broke, don't make it worse by making bad decisions — like spending on things you don't need.

3. Put together a plan. Paying off your debt should always start with a plan, no matter how much money you have. Start by listing your debts along with the balance and interest rate. Prioritize each of your accounts, noting the order you want to pay them off. 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

4. Stop creating debt. Cut up your credit cards and don’t apply for any more loans. You’ll never get out of debt if you’re continually adding to your balances. It’s tough to live without credit cards when you’re broke, but if you’re serious about getting out of debt you have to find a way to live on your income.

5. Look for ways to cut your expenses. Don’t guess about it. Review your monthly bank statements to see what you’re spending money on each month. For each purchase, ask yourself seriously whether this is an expense to get rid of. Remember, you’re not cutting costs just for nothing. You’re doing it so you can get out of debt. It’s a worthy goal.

6. Find ways to 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 towards 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.

7​. Ask your creditors for 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 gives you more leverage in 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.

8. 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. 

9. 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 with your creditors.

The debt management plan, or DMP, includes lower monthly payments to your creditors. You’ll make the monthly payment to your credit counselor who will then distribute payments to each of your creditors.

10. 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 is more effective. Track your progress, celebrate your successes, and keep chipping away until your debt is completely paid off.