How to Pay Off Debt when You Are Broke

How to Pay Off Debt When You’re Broke

Being broke and in debt can feel devastating, especially if you’ve put off repaying your debts and now have no idea how you’ll make it out of this financial hole. That being said, getting out of debt is possible, regardless of your income level. The following steps can help you dig out of debt and get back on track with your finances:

Step One: Assess Your Situation

Take a look at your current financial situation. How many debts do you have? Who do you owe money to and how much? Create a list of all of your debts more organized and visually appealing, and include the following information for each institution you owe money to:

• Name of lender
• Total amount of debt
• Monthly payment required
• Amount of interest you’re being charged

Organizing this list will help you prioritize your debt and give you helpful information when negotiating with your creditors.

Step Two: Figure Out Where You Can Cut Back

If you’re consuming more than you make, you’ll need to find ways to balance your budget and free up more cash. A good place to start is to streamline your expenses so you’re only spending on the essentials. This means looking into:

• Eliminating services that you don’t need; for example, cable TV or magazines
• Cutting back on unnecessary purchases; for example, drinking out or getting takeout every night
• Finding cheaper alternatives when you can; for example, thrift store furniture or secondhand decor

If you’re having trouble finding ways to cut back, keep track of your daily spending for a few weeks. This will give you a breakdown of where your money is going and will make it easier to identify unnecessary expenses.

Step Three: Talk to Your Lenders

Once you know how much money you can put toward paying your debt, it’s time to contact your lenders. Explain your financial situation and ask if they’re willing to work with you. In some cases, they might be willing to lower your rate of interest or waive certain fees. Get all of the details of any agreements in writing and make sure you follow through on your end of the deal.

Step Four: Make a Plan

Finally, create a plan of attack for tackling your debt. List out each debt and how much you’ll pay each month. Once you have everything mapped out, you’ll have a concrete plan to work off of. You should also consider setting up automatic payments to make sure you don’t miss any payments.

Step Five: Stick to Your Plan

Making a plan for paying off your debt is great, but you need to stick to it in order to actually get out of debt. This means eliminating as much extra spending as possible and funneling as much money as you can into debt repayment. It may be difficult at first, but it will be worth it in the long run.

Final Thoughts

If you’re feeling overwhelmed by debt, know that it is possible to work past it. Being broke and in debt can be scary, but by taking the time to understand your finances and work out a plan for repayment, you’ll be able to move forward with your finances and reach a debt-free future.