Last Updated on January 23, 2024 by Gagan Dias
How to get out of debt with no money and bad credit: Debt can be stressful, it can make you feel guilty when you shop, you can constantly worry about how you will ever pay it off, and you can worry every time you even check your bank statement.
I recommend letting go of energy Hey I’m Lorien I’m a co-founder and money coach at Dow Jones and I know what it’s like to be in debt, today I’m going to give you five steps to make progress towards creating a debt-free life.
1. Elevate Your Credit Identity To A Wealth Identity
Step Number One This Year Elevate Your Credit Identity To A Wealth Identity I often find that people who have been in debt for a while begin to really identify with it. Beliefs are the kind of people who have and this belief structure makes it really hard to ever get out of debt because as humans we naturally tend to do things that don’t match our vision of ourselves or if we do that they don’t last long unless we update them. Do you have a credit identity when thinking about it?
Best Step: How to get out of debt with no money and bad credit
Close your eyes for a second and in five years do you think your debt will still be there then it’s time to update your identity and path to do that by repeating new thoughts new actions and new feelings I want you to take a minute and close your eyes your debt What happens to the energy level How do you feel about yourself What do you feel I want you to jot down a few notes and then you don’t have to wait now to practice feeling these ways every day Now let’s get into some of the more subtle steps to paying off your debt
2. Assess your spending and your savings habits
Step number two Assess your spending and your savings habits Now first you want to know what happens to your money at the end of each month whether you have money left in your bank account or whether you’re not ahead but you’re not going into debt or enough to cover your month No money and at the end of the month you’re still in debt?
3. Reduce your existing expenses
If you don’t know, it’s time to start writing down every dollar that comes into your life and every dollar you spend will give you the clarity you need to take the next step, your third step.
If it turns out, it’s time to really think about where you can start to save costs and the first step to doing this is to be creative. This is not a creative exercise. A task This is an opportunity to think outside the box and the best way to do it is to put everything on the table, even what you don’t think you can do Clearing the boundaries is allowed in the brainstorming phase There is nothing so thin g because of a bad idea I You need to list each of your expenses and then think about ways you can reduce those expenses.
A really powerful way to help you get out of debt quickly, or by switching your insurance providers for a lower rate on your car insurance, is to get you past Hundreds of dollars that will be freed up to help pay off your debt through subscriptions.
If you look at your past bills do you pause them or cancel them all together Have you ever tried to talk and negotiate to see if you can get a lower rate or lower your rates Cut your monthly expenses and then write them down And create deadlines to actually take action and try each of those strategies for some things, you can cancel your Netflix subscription today or you can cancel your Amazon Prime membership today.
But if you can really go somewhere cheaper, you are going to do something big like research and give yourself until the end of the month to do that research project.
A real plan here is that your expenses aren’t all fixed they can change and you can change them in doing so you’re going to free up money to get out of debt even faster.
4. Increase your income by $1,000 a month
step number four is to work on the other side of the equation. To increase your income by a thousand dollars a month and speed up your time to be debt free you need to work with both sides of the cash flow equation, we need to increase the cash we need and decrease the outgoing cash so you have as much cash as possible now remaining to pay off your debt in the previous step You’ve identified ways to reduce your current expenses and now it’s time to see if there are ways to increase the amount of money coming into your life.
I want you to do a similar brainstorming exercise and list all the things you can think of that you can do to increase your income, take them out of work and see what new ideas you come up with then I want you to increase your income per month through each of those options. You want to map out how many hours it will take you to raise a thousand dollars.
Time and what feels the most fun to you are worth pursuing and you may find that a combination of options is the best way forward. Maybe you both ask for a raise and start walking the dogs in Rover 10 hours a week. Ultimately you have to do what fits your lifestyle and your goals. Increasing your income by a thousand dollars a month is just a goal.
This isn’t a number that’s right for everyone, but setting a goal can help stimulate new thinking so that once you get something new, you figure out what might actually work for you and think you can do it. Take all the extra income and put it towards your debt If you have more than one debt you’ve been trying to pay off Follow
5. Make a debt pay-down plan
step number five Pay off debt on the plan I recommend using what I call the Smart Snowball Method, here’s the summary: you’re going to list all your loans, the amount you owe, and the interest rate you’re paying on those loans.
You’re going to write them down from the smallest balance to the smallest amount and the largest debt and your spreadsheet could look something like this, or it could be a list on paper right now like the traditional snowball method where you’ve paid off your debt from the smallest balance to the largest balance you’re going to start with.
Same way and you’re going to pay off your smallest debt first, which means you pay the minimum amount on all your debts except the smallest balance which has become your top debt, not just to play with, but any other you can spare.
How To Set Up a Debt Repayment Plan
The thing is once you pay it off you do this until it’s paid off in full first celebrate yes that’s great you’re building wealth and knocking your credit profile forever and now you’re going to move on to the next loan with the ‘traditional snowball method’ depending on the size of your balance The next loan will be paid based on that, but with the smart snowball system, you are now going to pay your next loan based on its interest rate.
So if you have a loan with a higher interest rate, you are going to focus on that loan next. This way you both build your confidence in your ability to pay off the loan by eliminating the loan with a small balance. You also pay less in interest and effectively lower the amount you owe on your loans overall, quickly getting you out of debt and into wealth-building mode once you’ve paid off those first two loans.
Debt Repayment Strategy
Pay off the loan at the lowest interest rate until all is well. I know they are struggling against something and debt can be stressful, I know it can sound brutal but we really want to let go of those feelings because debt sucks but paying off your debt is amazing and you feel amazing every time. You have to allow yourself to put an extra penny toward that loan because that penny is progress.
The fun was making a visual tracker, you can google a picture or some on Pinterest you can draw it or find a free template online and start coloring it every time you make a payment on your prime loan it’s fun.
Being able to visually see your progress is rewarding and I recommend keeping that tracker on your fridge or somewhere very front and center in your life Be loud and proud about paying off your debt This is nothing to be ashamed of This is brave and ambitious and awesome you are Show off what you’re doing now with pride.