How To Pay Off Credit Card Debt When You Have No Money

How To Get Relief From Debt When You Have No Money

Being in debt is stressful. And knowing you don't have any extra money to put toward paying down your debts each month can be really disheartening. Here's the good news: You're not alone, and you have options you might not be aware of, including:

• Budgeting and following the debt snowball method or debt avalanche method

• Consolidating your debt through a personal loan or credit card balance transfer

• Implementing a debt management plan

• Filing Chapter 7 bankruptcy

To figure out which one is right for you, consider your financial situation, your timeline, and your goals. And, of course, educate yourself! You’re off to a great start by reading this article..

How To Use a Budget To Pay Off Credit Card Debt With No Extra Money

Personal finance gurus will usually tell you to start here: Make a budget so you know exactly how much money you have coming in, how much is going out, and where that money is being spent. There’s a good reason for this. Having a solid understanding of your basic monthly finances may be the first step to becoming debt free. 

If you make a budget and see opportunities to cut expenses, this can free up some cash to repay debt through the debt snowball method, where you repay your smallest balance first, then move onto the next smallest. This helps gain confidence and momentum as you tackle the balance on all your credit card accounts. 

How To Use Debt Consolidation To Pay Off Credit Card Debt With No Money

The term “debt consolidation” is used to talk about a few different debt relief strategies, including taking out a personal loan and using it as a debt consolidation loan and doing a credit card balance transfer. Let’s dig into the details of how these strategies work.

How Do Debt Consolidation Loans Work?

A debt consolidation loan combines all your separate debts into one new loan. This approach can simplify your life because you only have one monthly payment to worry about instead of several. Plus, the new loan should have a lower interest rate than your credit cards. Lower interest means you could pay less over the life of the loan.

Here's what you need to do to get a debt consolidation loan:

• Shop around: Look for the best loan terms you can find. Pay close attention to the interest rates and repayment terms.

• Apply: Once you find a good offer, apply for the loan. Keep in mind that you'll need a decent credit score to get the best rates.

• Pay off your cards: If you’re approved, use the loan to pay off all your credit cards at once. Now, you only have to focus on paying back this new loan.

It’s important to remember that while a debt consolidation loan can reduce your monthly payments and interest rate, it’s not reducing the total amount you owe. Make sure you don’t start using your newly freed-up credit cards again, as this can lead you back into debt. 

Before going this route, weigh the pros and cons of closing a debt account after paying it off in full; doing so can hurt your credit score in the short term, but it might be beneficial if you want to ensure you don’t use the cards. If you keep the accounts open but don’t rack up a balance, you’ll have a better (lower) credit utilization rate, which can boost your credit score.

How Do Credit Card Balance Transfers Work?

With a credit card balance transfer, you move your existing credit card debt to a new card that offers a low introductory interest rate, sometimes even 0%. This can give you a break from high interest rates and help you focus on paying down the balance faster.

Here are the basic steps to get a balance transfer card:

• Find a card: Look for a card with a 0% interest promotional period that lasts 12 months or more. Make sure the card’s regular interest rate after the promotion ends is reasonable.

• Transfer balances: Transfer as much of your high-interest debt as possible to the new card.

• Pay it off: Aim to pay off the balance before the promotional period ends to avoid higher rates on the remaining debt.

Keep in mind, there will probably be a balance transfer fee. Do some math to make sure that the savings you’ll get in the long run outweigh any costs you might have to pay upfront.

How Do I Transfer Funds?

Balance transfer credit cards usually offer several methods to process transfers. You might receive a checkbook from the card issuer, which allows you to write checks to pay off other balances. Alternatively, you can handle transfers digitally by entering account details through the card issuer’s website or app or over the phone. Many issuers also allow you to transfer debts directly from a bank account using direct deposit. These options make it easy to move existing debt to your new balance transfer card.

How To Use a Debt Management Program To Pay Off Credit Card Debt With No Money

A debt management plan (DMP) is a really helpful debt relief strategy for some people. A credit counselor at a nonprofit credit counseling agency will manage the DMP for you. These financial pros work with you and your lender to consolidate your debt, lower your interest rate, and set up a payment plan. Having this extra support and guidance works well for people who need help coming up with a debt-repayment plan.

DMPs are similar to debt consolidation in that they streamline your monthly payments. You just make one payment each month for all the debt included in the plan. And DMPs can be a good option if you have bad credit and don’t qualify for a consolidation loan. These plans work best for people who have a lot of high interest credit card debt or other kinds of unsecured debt like medical bills. You can’t usually include student loans, mortgages, car loans, and other secured debts in a DMP.

If you’re interested in learning more about a DMP, the first step is to talk to a certified nonprofit credit counselor. They offer free initial consultations to review your income, debt, credit history, and financial goals, which they use to tailor a debt repayment plan to your circumstances.

If you decide to start a DMP, there may be a setup fee (around $30–$50) and/or a recurring monthly fee (around $20–$75), but each company has its own pricing scale. A good credit counselor can give you a full cost and savings breakdown so you can see if this is the most beneficial option for you.

How To Use Debt Settlement To Pay Off Credit Card Debt With No Money

Debt settlement is a way to deal with debt by negotiating with creditors to pay less than what you originally owe. This usually means making a one-time payment that's smaller than your total debt, which the creditor agrees to accept as full payment. 

This method can help if you're in a tough financial spot and can't keep up with the original payment terms. But as you can see, you’ll need to have access to some money to pursue this option. If you don’t have anything left at the end of the month, this probably won’t work for you. But if you come into a small windfall through a tax refund, from a bonus at work, or by selling some personal items, you can consider this strategy.

Keep in mind that settling your debt for less can lower your credit score, depending on how it’s reported to the credit bureaus. Also, the IRS might tax you on any debt over $600 that gets forgiven, meaning you could owe taxes on the money you didn't have to pay back.

How To File Chapter 7 Bankruptcy To Get Rid of Credit Card Debt

Filing Chapter 7 bankruptcy can wipe out your credit card debt and other kinds of unsecured debt like medical bills, past-due utility bills, personal loans, and even some student loans. This option isn't right for everyone, but if you’ve tried other things and can't find the money to pay off your debt, bankruptcy can give you a fresh start.

Filing bankruptcy also stops debt collector phone calls and other forms of contact thanks to the automatic stay. This can provide a huge sense of relief if you've gotten far behind on your credit card bills. Chapter 7 is also relatively fast. For most people, it takes just 4–6 months. Keep in mind that a bankruptcy stays on your credit report for up to 10 years. But you’ll be able to start rebuilding your credit almost immediately.

Upsolve has a ton of information on bankruptcy from the pros and cons of Chapter 7 to the difference between Chapter 7 and Chapter 13. You can take our two-minute screener to see if you qualify to use our free filing tool. Or you can get a free consultation with an attorney if you prefer to talk your situation through with someone.

Let's Summarize...

You don’t have to let burdening debt swipe away at your happiness. You just have to find what’s right for you. The Upsolve Learning Center can help you dig into the details about different debt relief options. 

Your credit card debt can go away; it just can’t go away overnight. You took the first step today. Tomorrow you can take step two and think about what debt relief option might be best for you. Upsolve is here to help.