How to Get Out of Debt With Bad Credit

By Tielle Webb

Overview

It can be difficult to avoid debt. You get a student loan to go to college, you get financing to buy a vehicle, and you get a mortgage to have a home of your own. The credit cards come, too, one at a time, and you swear you will be diligent with them. Somehow, before you know it, the debt starts to feel overwhelming. Getting out of debt, especially with bad credit, will take some effort. However, it is possible, especially when you are armed knowledge.

It feels like your money is going down the drain.

Step 1

Put away the credit cards. Lock them away in a file cabinet, stash them in your sock drawer or place them in a container filled with water--in the freezer. Put them somewhere that makes them so inaccessible that you will not use them. You cannot get out of debt if you keep creating more debt. Since you have bad credit, you know you cannot get new cards so you will be safe.
Step 2

Make a list of all of your debts. Choose which order you want to list them in. With bad credit, you probably won't qualify for a consolidation loan, so you will have to pay down your debt a bit more slowly. You might want to pay them off in order from smallest to largest, or you might want to put those with the highest interest rate first. Either way, start sending any extra money you get your hands on to the first debtor on your list. Once the first one is paid in full, move on to the second.

Step 3

Carry a little pad of paper and a pen with you wherever you go. Write down every nickel and dime you spend for a week to a month. Then go over your spending habits with a fine-toothed comb and eliminate everything that is not 100 percent essential. Read the paper online instead of buying it at the store, and make your coffee at home. Brown bag your lunch and borrow movies from the library. The money you save will go towards the first bill on your list.
Step 4

Be a minimalist. Because your credit is already damaged, you need to take big steps to start rebuilding it. At least until your debts are under control, find every way you can to decrease your spending. Turn off cable (or lower your subscription to the cheapest basic cable possible). Get rid of your home phone if you have a cell phone. Find out about budget options from your utility companies. Stop eating out, period.
Step 5

Gain income. Ask for a raise at work. Take a part-time job on top of your full-time one. With bad credit, it might be more difficult to find another job because many employers check your credit as a type of reference. Find ways you can make some extra cash around your neighborhood, such as yard work, tutoring or dog walking.

Skill: Moderate
Tip: Even though you have bad credit, it cannot hurt to call your credit card company and ask for a lower rate. The worst that can happen is they'll decline.

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