How to Pay Off Debt when You Are Broke

Last Updated: October 27, 2022 References

It can be difficult to pay off debt when you are broke. Find ways to obtain money by selling extra stuff from around the house and seeking government aid. Then, develop a strategy by creating a budget, prioritizing your various debts, and identifying ways to save. Finally, avoid creating new debts, put all extra income toward your debt, and always pay at least the minimum monthly balances on time.

Method 1

Method 1 of 3:

Getting Money

1
Identify new sources of income. Instead of working just a single low-paying job, take a second job. Alternately, ditch the low-paying job and get a high-paying job. Find old things around the house and sell them on digital marketplaces like Craigslist or eBay.^{[1]
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Research source} Find things you’re good at and pursue them for monetary gain.^{[2]
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- For instance, if you paint in your spare time, put some of your pieces up for sale online. If you like to write, monetize your blog or find a client willing to pay for your writing.
- If you’re working a low number of hours, talk to your boss about how you can work longer shifts or get more hours each week.^{[3]
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2
Seek government aid. The federal government has more than 1,000 benefits programs that can help you manage your debts even if you’re broke. For instance, the U.S. Department of Health and Human Services offers 300 grant programs that can pay medical debts. You might be able to get help paying energy bills from the Low Income Home Energy Assistance Program.^{[4]
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- Visit these agencies' web pages to begin the application process and get in touch with your local community aid department for more information.
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3
Talk to church and charity groups. If you are part of a religious community, you might be able to speak with your faith leader (imam, priest, or rabbi, for instance) and explain that you are in financial trouble and need help with your debts. They might be able to organize an event or take up a collection that they can pass on to you.^{[5]
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Method 2

Method 2 of 3:

Developing a Strategy

1
Make a budget. Before you figure out how to pay off debt, you need to figure out how much money you have. Being broke might mean you have $100, or it might mean you have $1,000. Use a personal finance app or program like Quicken or Mint to put in all your financial data.^{[6]
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Research source} Use these tools to develop a budget that can help you pay off your debt and save money.^{[7]
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- If you prefer to develop a budget from scratch, grab a piece of paper and a pen. Draw up three columns. Label the first “Obligatory expenses,” the second “Discretionary spending,” and the third “Income and assets.”
- In the first column, make a list of all your debts and household expenses (groceries, minimum monthly payments toward debts, utility bills, and so on).
- In the second column, list all your discretionary spending (coffee, dining out, entertainment).
- In the third column, list all the money you earn from working and all the money you’ve put in the bank since landing your job.
- Total each column at the bottom. Add the totals from columns one and two. Subtract the sum from your total in column three. If the number is equal to or less than zero, eliminate your discretionary spending, reduce the costs accumulated by your obligatory spending, and/or find a better-paying job.
2
Prioritize your debt. Identify which debts have the highest interest rates and pay them off as fast as possible. While paying off the debt or debts with the highest interest, continue paying off your other debts by making the minimum monthly payment.^{[8]
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- For instance, if you have a debt with 3% interest and a debt with 0.5% interest, you should pay the minimum monthly balance on the debt with 0.5% interest, and pay more than the minimum balance each month on the debt with the 3% interest rate. Put the money you saved by reducing your spending after drawing up your budget toward the higher-interest loan.^{[9]
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- One exception to this rule is for any debt with a prepayment penalty. Many home mortgages, for instance, have a prepayment penalty for paying the debt off before a certain period of time has elapsed. Check the terms and conditions of each of your debts carefully to avoid being hit with prepayment penalties.
- Carefully look over all your loan and/or credit documents to determine how to best prioritize your debts.
3
Spend less money. Once you’ve drafted your budget, look for ways to reduce your expenditures. There are two ways to reduce how much money you spend. First, you could reduce your discretionary spending. For instance, instead of going to the movies, you could stay home and watch TV. The second way to reduce your spending is harder, and requires cutting back on your obligatory spending.^{[10]
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Research source} For instance, you could move from a three-bedroom apartment to a cheaper studio apartment.
- If you’re really committed to paying off debt, cut back on both discretionary and obligatory spending.
- No matter how you decide to save money, use the money you’ve saved to pay off debt.
- Save on housing costs by moving in with friends or family.^{[11]
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  Research source} If you don’t have any money, one way to save a good deal (and avoid ending up on the street) is to move in with your family or friends. This will give you time to save your money and pay off debt.^{[12]
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4
Keep a positive attitude. When you’re crushed under the weight of being both indebted and broke, things can seem hopeless. Just keep a positive mental attitude and focus on making payments toward your debts each month. With hard work and dedication, you’ll be on your way to getting through it.^{[13]
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- Make time for family and friends. Engaging in pleasant social interactions can improve the mood and overall well-being.
- Give yourself modest rewards when you reach certain milestones. For instance, if you have $15,000 in debt, cook a pleasant dinner at home with your spouse when you pay off $5,000 of debt. Take a long walk near your favorite river when you’ve paid off $10,000 of debt. When your debt is finally paid off entirely, visit your local museum on a day when there is no charge for admission.^{[14]
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Method 3

Method 3 of 3:

Identifying Ways to Combat Debt

1
Put extra money toward debt. If you get money from relatives for your birthday or the holidays, do not use it to indulge your desires or buy new knickknacks you don’t need. Instead, put the money toward your debt. Likewise, put all work bonuses toward your debts.^{[15]
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Consult a financial planner. If you are broke with debts, you are in dire financial straits. One of the best ways to use the money you have is to get professional help. With a certified financial planner’s assistance, you’ll be able to develop better habits around your saving, spending, and debt management.^{[16]
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- A financial planner can also help you develop a financial plan to help you acquire wealth, set and meet your financial goals, and discover ways to adapt through changing circumstances such as a change in employment status or divorce.^{[17]
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- Rates to consult a financial planner vary. You might get a flat rate for around $1,000, or an hourly fee of about $250 per hour. Though it seems expensive, putting aside some money for a financial planner to analyze your financial situation is a good investment.
- A financial planner is similar to, but different from, a credit counselor. A credit counselor specializes in helping clients grapple with their consumer debt, while a financial planner tends to help clients develop new skills and tricks to manage their finances (including debts).
3
Use balance transfers. If you have credit card debt on a card that has a high rate of interest but you’re sure you could pay it off in a few months, you can get your debt moved to another card and pay zero interest on it. Simply contact a credit card company where you don’t have a credit card and inquire as to whether they offer any zero percent balance transfer credit cards. If they do, they’ll transfer your balance from one card to their card and charge no interest for a fixed period.^{[18]
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Expert Source

Lyle Solomon, JD
Attorney
Expert Interview. 18 August 2021.}
- Before switching to a balance transfer, be sure you can afford it. If you don’t pay the debt off before the zero percent interest period expires, you’ll be hit with interest again, possibly at an even higher rate than what you were paying originally.
- Some cards offer a zero-interest rate that lasts up to 18 months.^{[20]
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- Balance transfers are typically subject to a one-time fee, so check the fine print before accepting any balance transfer deal from your credit card provider.
- Keep in mind that balance transfers don't actually change the amount of debt you owe—they just potentially change your interest rate.^{[21]
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  Lyle Solomon, JD
  Attorney
  Expert Interview. 18 August 2021.}
4
Do not apply for additional loans or credit cards. This will help you avoid racking up new debt. You will not be able to easily pay off debt when you are broke if you continue to create new debts.^{[22]
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Reduce your credit card usage. Use your credit cards once each month for small purchases like groceries or to fill up the gas tank, then pay the balance off immediately. Do not stop using your credit cards altogether or you run the risk of reducing your credit score if your account is closed.^{[23]
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Remove credit card data from online stores. If your credit card information is stored in your account profile for online stores, it is easier for you to check out. But it also makes it more likely that you’ll buy things online that you’d be better off without. Log in to the online store profiles that you use regularly and delete the information.^{[24]
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- If you decide you need to buy something online, enter your card info where appropriate but do not save it to your profile when prompted to do so.
- If you’re regularly paying for services or goods online, use a debit card linked to your checking account. This will save you from interest and late fees. Just make sure you always have enough money in your account to make the regular payments.
7
Apply for a lower interest rate. If you’re broke, you have a pretty good case as to why you need a lower interest rate. For instance, if you are broke because you have no job (or have only a poorly paying job), you can often petition your credit card company to reduce your interest rate. You might also be able to obtain a pay-as-you-earn deferment on student loans so that they stop racking up interest so quickly.^{[25]
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- There is no uniform process for applying for a lower interest rate. Consult the terms and conditions of your specific loans or debts for information about how to negotiate a lower interest rate.
8
Always pay debts on time. If you pay your monthly minimums late, you’ll start racking up not only interest, but late fees, too. This will only add to the debt you need to pay back. Avoid this unhappy situation by always paying your minimum monthly balance on debts.^{[26]
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Consolidate your debt. Debt consolidation is a process by which many debts are combined (and therefore simplified). This allows you to make one simple payment toward your debt each month. There are three major types of debt consolidation.^{[27]
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- In a debt management plan, you’ll meet with a credit counselor to determine how much you can afford to pay each month. This is the most common sort of debt consolidation.
- With debt consolidation loans, you make a single payment to a single creditor at a lower interest rate than what you’ve been paying. This means you will be able to focus on paying off one debt at a time.
- A third variation on debt consolidation is known as debt settlement. With this technique, you can pay a massive lump sum toward your debt that totals far less than what you would otherwise pay.
- Debt consolidation and debt settlement will negatively impact your credit score. Debt consolidations will likely push back the period it takes you to pay off your debt.
- Talk to a credit counselor or certified financial planner to begin a debt settlement or debt consolidation program.

Expert Q&A

Question

How do I pay off debt if I live paycheck to paycheck?

Benjamin Packard
Financial Advisor
Benjamin Packard is a Financial Advisor and Founder of Lula Financial based in Oakland, California. Benjamin does financial planning for people who hate financial planning. He helps his clients plan for retirement, pay down their debt and buy a house. He earned a BA in Legal Studies from the University of California, Santa Cruz in 2005 and a Master of Business Administration (MBA) from the California State University Northridge College of Business in 2010.

Benjamin Packard

Financial Advisor

Expert Answer

Prioritize your debt over your savings. If you have any leftover money, put your money toward your debt instead of placing it in a savings account.