How To Get Out of Debt Even When You're Completely Broke

This post and the photos within it may contain Amazon or other affiliate links. If you purchase something through the link, I may receive a small commission at no extra charge to you.

You want to pay off debt but you’re living paycheck to paycheck. You’re making the minimum payments but there’s not enough money left over to put any extra towards your debt. It feels like a hopeless situation that you’re never going to be free of.

Sound familiar?

Being broke sucks. And when you’re broke and in debt, it’s ten times worse. It’s stressful and makes us feel bad about ourselves like we’ve failed at life or something.

We all want to live a happy and fulfilled life. And debt doesn’t make anyone happy.

But you can get out of debt even if you don’t have a lot of money.

How?

By coming up with a plan and making a commitment to yourself that you’re going to stick with that plan.

How to Get Out of Debt When You’re Broke

A goal without a plan is just a wish ~ Antoine de Saint-Exupéry, author of The Little Prince

Make a Commitment to Get Out of Debt

The first step in creating a plan for paying down debt is deciding that you actually want to pay off your debt.

Let’s talk about this.

I think we can all agree that debt is stressful. But sometimes what’s even more stressful is feeling like we’re going without.

It’s easy to say you want to pay off your debt.

But when you’re faced with a situation where you want to buy something and it’s a choice between the happy feeling you’re going to get when you buy the thing and the not-so-happy feeling of walking away because it’s not in the budget, what are you going to choose?

In the majority of cases, we’re going to choose the happy feeling. At that moment, the short-term happiness far outweighs the long-term benefits of being debt-free.

Later, we’ll probably regret that decision. And feel guilty that we caved into temptation. But at that moment, we’re not thinking about any of that. Because stuff = happiness.

Read the post Why We Buy to learn more about this.

This is why the first step in your debt payoff plan needs to be a commitment that you’re going to stick with it.

Things are going to happen that will try to derail your progress. Your favorite store might have a killer sale. Your friends might want to go out or take a trip somewhere.

It’s like there’s a little demon that lives inside our brain and wakes up whenever we’re confronted with something we want. “Wait, what’s THAT? Oooh, shiny. I see it, I want it, I MUST HAVE IT!”

To Get Out of Debt You Have to Make Sacrifices

You need to be prepared for those situations so you’re able to handle them when they come up.

The best thing you can do when you’re tempted to spend money is to stop and think. I know it’s hard to do. I struggle with this and I can say from experience it will take some practice.

But before you open your wallet or say yes to something that’s not in your budget, ask yourself some questions.

Do I really need this?
How much is this going to set me back in paying off my debt?
Is this thing worth staying in debt for?

Usually, the simple act of taking the time to think about it is enough. It distracts your brain and the demon goes back to napping.

Committing to paying off debt and resolving to face any challenges that come your way will set you up for success from the very beginning.

Figure Out How Much Debt You Really Have

You’d be surprised at the number of people who won’t acknowledge exactly how much debt they have.

Being in debt is a source of embarrassment and guilt. When we feel guilty about something it’s just easier to ignore it.

But mindlessly paying the minimum balance each month is going to cost you money in the long run and take you even longer to get out of debt.

You need to have a complete picture of your debt before you come up with a plan. Once you have all the facts like balances and interest rates, you can choose the best plan for you.

Make a list of all your debt – credit cards, loans, hospital bills, the money you borrowed from your mom – whatever. Include the minimum payment, interest rate and balance of everything.

Most account info is available online these days. But you can also call your bank and credit card companies to get all the details too.

Don’t freak out if it’s way more than you expected.

OK, maybe freak out a little but use that as motivation to get it paid once and for all.

Use the worksheet at the bottom of this post to track your debt.

And congratulations! Once you’ve completed this, you’ve taken a GIANT step forward in your plan to pay off debt.

Identify All Your Expenses

When you don’t have a lot of extra money to spare, it’s time to get creative. For starters, you’re going to need to cut expenses to increase the amount of money you can put towards your debt.

Start by making a list of all your expenses that you shell out money for on a regular basis. Include the usual things like rent/mortgage, utilities, insurance, phone, cable, credit card payments, loans, etc.

If you’re not still using your mom’s password, include Netflix or any other streaming service you might pay for.

If you stop at Starbucks a few times a week, put it on the list. Estimate what you usually pay for groceries, gas, eating out, entertainment and other “variable” expenses that might change each time.

Examine your bank statements for anything you might have missed. If it’s something you frequently spend money on, it needs to go on the list.

When you’re done, you might be shocked at everything you pay for each month. And a lot of it without really thinking about it.

Cut Those Expenses!

Look for any expenses that can be eliminated or reduced. This part is tough, I’m not going to lie. But you didn’t get into debt overnight and you’re not going to get out of it overnight either. It’s going to take some effort and sacrifice.

Find the expenses that you can completely cut out first. I love Starbucks as much as the next person, but it’s not really a necessity. Pinterest has plenty of hacks for copycat Starbucks recipes you can make yourself.

I’m sure you’ll find there are some expenses that aren’t necessities that you can either find a workaround for or eliminate altogether. It just depends on how badly you want to get out of debt.

There will be certain things you can’t eliminate but that doesn’t mean you can’t find a better price or a way to make it cheaper.

One of the best things I did for my budget was to cancel DirecTV. I saved over $700 a year by dumping DirecTV. If you’re interested in the whole process I used to make the switch, you can read that post here.

There are other ways you can reduce expenses too. Look for monthly expenses that you could save money on by switching to an annual plan. Amazon Prime is a good example of this. You can pay $12.99 per month and spend $155 a year, or you can pay a yearly rate of $119. It saves you about $40 but it also frees up that $13 every month to put towards your debt.

It Never Hurts to Ask for a Discount!

Check with your insurance company too to see if you qualify for a lower rate. You can get discounts for a variety of reasons such as bundling auto and home, having multiple cars, a good driving record, good credit, etc.

You can also try to negotiate with your credit card company to get a lower interest rate too! Most people wouldn’t even think to try this but sometimes they will work with you, especially if you’re persistent enough.

You might be surprised at what discounts you can wrangle simply by asking.

To help you get started, I’ve included a worksheet at the end of the post that you can use as you’re going through your expenses.

Make a Budget

Making a budget is going to be the single most important thing you do to pay down your debt.

It’s amazing how many adults don’t have a budget. They have a vague idea of how much is coming in and going out but as long as there’s a positive balance in the account, they figure they’re OK.

This is a HUGE mistake.

If you don’t have a budget, then you don’t have control over your money. You’re just leaving your fate up to the mercy of the gods of spending on autopilot.

You’re trying to pay off debt when you don’t have a lot of expendable income, so you need to be aware of every dollar that comes in and goes out. There’s not a lot of margin for error and a bounced check or overdraft fee can be a budget-buster that’s going to cost you a lot of wasted money. Money that could be put toward your debt.

Find a Method to Track Your Budget

There are plenty of apps you can use for budgeting but be aware some of them cost money. I’ve never had any luck with budgeting apps, free or paid, and have always relied on my trusty old friend Excel.

A printable will work great too if you keep it in a spot that easily accessible and visible. I’ve also included a starter budget printable at the end of this post. I’m like the Oprah of printables today. “You get a printable! And you get a printable! Everybody gets a printable!”

It doesn’t matter which method you use for budgeting – app, spreadsheet, printable whatever. And it doesn’t matter how you set up your budget. You can do it monthly, or bi-weekly or according to how you get paid.

The important thing is to set it up and keep with it. This is going to help keep you accountable to the commitment you made to pay off your debt.

And be honest about your spending. If you overspent on groceries or splurged on something new, don’t fudge the numbers and hide it. Acknowledge it and you’ll be less likely to do it again.

Create Your Plan

Creating your debt pay off plan is probably the easiest part of the whole process.

Why?

This part is just math. You have x amount of dollars to put towards y balance. In z months, you’ll reach a zero balance. Easy, right?

Refer back to your list of debts and prioritize the accounts you’re going to include in your plan.

There a couple of different ways you can do this.

You can choose to pay off those debts with the highest interest rate first. This is the debt avalanche method. You’ll pay less in interest overall, but it takes longer to get one debt paid off.

The other approach is to pay off the accounts with the smallest balance first, which is known as the debt snowball method. You’ll pay more in interest but the benefit to this method is psychological mostly. You’re seeing some wins quicker which helps with the motivation to keep going.

Example of the Debt Snowball Method

You have 3 accounts you want to pay off.

Account A has a balance of $200 and a monthly payment of $15.
Account B has a balance of $500 and a monthly payment of $20.
The last account, Account C, has a balance of $1500 and a monthly payment of $40.

You have $50 designated for your debt payoff. You put that extra $50 (plus the $15 regular payment) towards Account A until it’s paid in full.

Now you have $65 extra – the extra $50 plus the $15 monthly payment from Account A. You pay $65 plus the $20 monthly payment on Account B until it’s paid in full.

Super! Now you have $85 to put towards Account C. $50 + $15 (Account A) + $20 (Account B).

You’re going to pay $85 plus the $40 payment on Account C until it’s paid off.

If you paid only the minimum payment on each account, it would take 38 months to pay them all off.

Using the snowball method, you could have them all paid off in 19 months! And that’s starting with just $50 extra each month.

Dave Ramsey breaks down the difference between debt avalanche and debt snowball in a great article you can find here.

Keep the “Get Out of Debt” Momentum Going

No matter which way you choose to pay off your debts, once an account is paid in full apply that payment to the next debt in the list.

Keep going until every last debt on your list is paid down to a zero balance.

And I think it should go without saying, but I’ll say it anyway for clarity, do not put any new charges on your credit cards while you’re on your debt payoff plan.

If you continue to add to the balance your debt will never be paid off. So do whatever you need to in order to not use them – freeze them, cut them up, give them to a friend to hold on to.

Find Extra Money

The more money you can manage to put towards your debt, the sooner you can reach your goal of being debt-free.

There are a number of ways to increase your cash besides the obvious solution of getting a 2^nd job. If you’re not interested or able to get another job, think about these other options instead:

1. Sell Your Stuff

If you’re in debt, it’s probably in large part because you’ve bought a lot of stuff. I’m not judging, just stating the facts. Consumer debt in the US is in the trillions. We love to buy things.

If you want to find extra money to put towards your debt, why not sell some of the stuff that got you into debt in the first place?

Spend an evening cleaning the closet, and pare down your wardrobe a little. If you have designer or brand name clothes, there are places online you can sell them.

You could also have a yard sale. This is a great opportunity to get rid of things that still have some use but not much value to you anymore.

Use Facebook Marketplace or Craigslist to list items you want to sell. This would be good for bigger items like furniture or equipment that you can’t ship. Make it a condition of the sale that the purchaser will need to pick it up.

2. Turn Your Hobby into Cash

If you’re a crafty person, consider selling some of what you make.

You could open up an Etsy or Shopify store but that’s a lot of work to set up and you’ll pay a fee for listing and selling on those platforms.

Try selling to friends, neighbors, or co-workers. I have a few friends who make things and use Facebook for marketing and selling.

3. Put Your Skills to Use for a Fee

Do you have a special skill or talent? Put yourself out there and offer it for a fee. Here are some ideas to get you started:

Web design
Accounting
Virtual Assistant
Freelance writing
Proofreading
Graphic design
Party planner
Handyman
Wedding coordinator

Final Thoughts

When you’re broke and in debt, it feels like an endless cycle. You’re paying so much money each month on the minimum debt payments that there’s not extra left over to pay it down. If you can’t pay it down, you have to continue to make the minimum payments.

See the problem?

Once you make a commitment to get serious about paying off your debt and you find ways to free up money to put towards it, you’re already beginning to break the cycle.

Paying off all your debt is a major accomplishment. You should be proud of yourself.

But the work doesn’t stop there.

Wait, what?

You need to make another commitment, this time that you won’t let yourself get in that situation ever again.

There are benefits to using credit cards if you use them wisely. Take advantage of perks like airline miles and discounts, but make sure you can pay it in full at the end of the month. Don’t get into the habit of carrying balances on your cards or you’re going to wind up right back in debt again.

Learn to be smart about managing your money too. Continue with a budget so that you have control over your spending. Review it periodically to identify any areas for improvement.

You should make saving money a priority too. Having money in savings is your insurance policy if an emergency or unexpected expense pops up.

Being debt-free is going to have a positive impact on your life in ways you can’t imagine. All it takes is a little work and determination and you’ll be well on your way to living the life you’ve dreamed of.