How to get out of debt fast with no money

You daydream about the day you can quit working and retire. But reality sets in and you realize you are drowning in a sea of debt. You wonder…How can I pay off debt if I’m broke?

A 2018 study by Northwest National showed that the average American has approximately $38,000 in personal debt. I know devising a plan to pay off debt, especially one as large as the average American has accumulated, can be intimidating. If you hope to be financially independent you will need to face your debt head on and eliminate this obstruction that is holding you back.

Paying off debt requires dedication and persistence. Paying off debt fast with little to no disposable income requires serious planning. Here are 8 steps you must take if you are serious about becoming debt free.

Step Zero – Figure out exactly what you owe

How can you start to plan your attack on your debt if you don’t even know how much you actually owe? The first thing you need to do is make a list of all of your creditors, the total amount you owe, interest rate, and the minimum monthly payment.

TAKE ACTION!

Go do this now. I’ll wait.

Done? Good! Welcome back.

I’m sure it wasn’t easy for you to see how much you truly owe but the good news is you can now start planning your assault towards winning the war on your debt. However, once you have decided to fight this battle take solace in knowing your total debt will only get smaller from here

Step One – Stop using credit cards

I know this seems like a no brainer but you got yourself into this hole so clearly you have not yet figured out that credit cards are evil. You need to stop using them now. How do you expect to dig yourself out of this hole if you keep dumping more sand in it by continuing to make purchases at 24% interest?

It is time you show some discipline, Hide your cards, cut them up if you must. If you don’t have the money now to buy something you want, don’t buy it. Simple! Self Control.

Step Two – Make a budget and cut spending

You need to make a budget and stick to it. What are your absolute necessities and what can you live without? Rent, electricity, food,.. be realistic when budgeting. You don’t have to shut the heat off and be late on the rent but do you really need to be drinking bottled water when you can get it for free from the faucet? Maybe you need to cancel cable for a few months or downgrade your car to something with a lower payment or buy a used car with no payment.

Find areas you can cut spending and apply that money to your debt. So if you cancel cable and cable was $120 a month, then you should be applying that $120 per month directly towards paying down debt.

For more ways to cut spending check out this article I wrote; 10 insanely easy ways to cut spending and become a millionaire by 45

Step Three – Ask for help

In step zero you wrote down a list of your creditors and what you owe them. In step 3 you need to reference that list and pick up the phone and call them to ask for help.

You are going to call each and every one of them and negotiate. Negotiate a lower rate on your credit cards, ask for late fee forgiveness, anything you can get. There is probably a customer service number right on the back of the card, call it and ask for help

But don’t go into the negotiation unarmed. Have copies of your bill in front of you, study them in advance and have offers and counter offers prepared. Know how long you have been a customer of theirs and let them know it. Loyalty often pays off in times like these. Know their competitors rates and quote them, see if they will match or beat their competitors offers.

Be persistent but be polite. Ask to speak with a supervisor. Sometimes you just might not be speaking to the right person. Be honest, tell them you would like to secure a lower rate because you want to keep making the payments on time.

If all else fails you can always look to transfer balances to lower or zero interest rate introductory offers.

Step Four – Strategize: Pay off highest interest cards first

Dave Ramsey will tell you to pay off the smallest balances first and then use the money you were putting on that card towards the next lowest and so on until everything is paid off. This is a fantastic strategy but why pay continue to throw away the extra money each month on interest? By paying the highest interest card down first, you will be using the money you would be throwing away on interest payments to pay down principal.

That is how I did it. Once i paid all my necessities each month (rent, heat, etc.) I put the minimum payment on all remaining dept with the exception of my highest interest credit card. I put everything I could scrape together towards that debt andI was paying almost $200 a month just in minimum and the balance never seemed to get smaller. Once I got rid of that completely I had an extra $200 a month plus whatever scraps I could put together to put towards the next highest interest debt. And so on and so on until everything was gone except my mortgage.

Look I’m not saying you have to do it this way. This is what worked for me and it is what makes the most logical sense. The important thing is that you devise a strategy and stick to it no matter what until all debt is eliminated.

Step Five – Use windfalls to pay off large chunks of debt

Tax season is my favorite time of year. I can count on receiving a nice chunk of change when I file my tax returns. Do you know how I’m going to recommend you spend your tax returns? Thats right, put the whole thing towards the principal of your highest interest debt. You can really start to take big bites off of debt if you take these windfalls and put it all towards the principal. I did the same with pay raises and bonuses I received at work

Step Six – Sell your stuff

We all have piles of stuff we hardly use. Hell it is probably what got you in to this debt in the first place. It’s time for spring cleaning. Clean out the shed, garage, basement, and anywhere else you store crap to collect dust. See what you can sell and put that money towards your highest interest debt.

Have a garage sale, sell them on EBay, go to an auction house or a pawn shop. Whatever it takes. Take what you can get. If you are serious about eliminating debt you can spend a few hours finding some things of value to sell.

You don’t have any stuff you are willing to part with? Well go find some. Go on craigs list, find some stuff for free, go get it and sell it somewhere else. Again, if you are serious about eliminating debt, you will spend some time finding ways to get extra cash. The more serious you are, the further you are willing to go. I once cancelled cable for 2 years so I could use that money to fund my debt elimination plan. It wasn’t fun but it worked

Step Seven – Make more money

Get a 2nd job or a side hustle.

A common theme you have probably picked up on throughout this article is sacrifice. If you are serious about cleaning up your debt you will need to make some sacrifices. One of them might need to be your time.

Perhaps you need to get a second job slingin burgers for a few months until your debt is at a more manageable level.

Side hustles are another great way to earn extra cash. I already talked about selling your stuff. How about mowing lawns on the weekend. Are you handy? Maybe you can work as a handy man on the side. You can help people move, become an instacart shopper, an Uber driver… the possibilities are endless. Just do something.

The title of this article promised a step by step method for getting out of debt. I never promised it would be easy. Getting in to debt it easy. Getting out is hard work, sacrifice, and relentless diligence. But it will all be worth it when you reach step 8.

Step Eight – ENJOY BEING DEBT FREE

I have never had a more satisfying feeling then when I wrote my last check to pay off my debt. The peace of mind that comes along with being free from the restraints of crushing debt can not be over stated.

Once you are debt free I suggest you reward yourself. Go out for a fancy steak dinner or take the gang out for drinks. Just make sure to pay for it in cash.

Now you can take the money you were using to pay off debt each month and put that towards building your nest egg. Having control over your finances you will find is addicting.

If you are ready to start saving for early retirement, read my article on the 7 habits of the wealthy.

Thanks for reading and Happy saving

Earl