The idea of paying off debt when you can barely afford food may seem ridiculous. The truth, however, is that you don't need to spend much money to get yourself out of debt. Many of the things you need to do to start again have to do with changes in lifestyle rather than with writing checks. Even when it comes to paying off old bills and debts, there are still ways to deal with the expenses when you are broke.
Step 1
Figure out how much you owe. Don't tell yourself you know the numbers "in your head." Sit down and make a list of every single penny you owe, the interest rate on each debt and what the minimum payments are and their due dates. Organize the list in a logical manner, either based on interest rates or the size of each individaul debt.
Step 2
Keep an expense journal and write down everything you spend money on for a month. This is essential to figure out areas where you're overspending and things you can cut out to free up some money. Small things like giving up your morning coffee on the go (and instead having one at home), canceling a gym membership you're not using, not buying the newspaper every day or using only your bank's ATM (to avoid extra charges) will add up to savings. Any "extra" money you can find this way should be put aside and used to pay off debt.
Step 3
Give up luxuries. Whether it's cable TV, taxi rides (get up early and take the bus), your weekly manicure or dining out, stop doing it. You may think the money saved is too small to make a difference, but every penny helps, especially if this is all you can afford to do right now.
Step 4
Talk to all your creditors and request that they lower your interest rate, give you a payment plan or cancel late fees. Most companies will work with you to find a solution if you're firm and make it clear you simply can't afford to make the payments right now.
Step 5
Pay more than the minimum every month. Even if it's only a few extra dollars, it will still make a difference. Whatever money you can free up by changing your lifestyle, add it to the minimum payment of the credit card with the highest interest rate.
Step 6
Consider borrowing money. You might be able to borrow against your life insurance policy, get a home equity loan or take money from your 401(k). All these options may seem contradictory, since you'll be creating more debt, but the option is valid if you have debts with very high interest rates, if you are at risk of losing your home because of late payments or if you have outstanding medical bills that are interfering with further treatment.
Step 7
Sell things you no longer use, such as exercise equipment or electronics, for extra cash. Or consider getting a second job or working in your free time as a babysitter, house cleaner or dog walker. Use any money you earn to pay off debt.
Tips and Warnings
- Filing bankruptcy should only be considered as a last resort. Once you do it, your credit score will be marked for seven years and you will have to start rebuilding it from zero.
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