Paying down high-interest debt, like credit cards, can save you money, lower monthly payments, and improve your credit score by reducing your debt-to-income ratio. This, in turn, helps you qualify for better credit opportunities.
However, if you have bad credit, this can seem difficult. Have no fear – while it can be challenging to get certain types of loans with bad credit, you still have plenty of other options. We’ll explore all of the different choices you have for how to get out of debt with bad credit.
How to get out of debt with bad credit
Here are the top strategies to use that don’t necessarily require good credit:
Make sure your credit report is accurate
First, make sure your bad credit score isn’t a mistake or worse than it should be. According to an FTC study, 25% of people have errors on their credit reports, and occasionally, this results in triple-digit damage to their credit score. You can check your credit score for free with each of the three credit bureaus on AnnualCreditReport.com.
If you find a mistake, it’s a relatively easy process to file a dispute with each of the three credit bureaus online in order to get it fixed.
Focus on one debt at a time
You have two choices for how to prioritize your debts: the debt snowball or the debt avalanche method. The debt avalanche method has you pay off your debts in order of highest to lowest interest rate, which helps you ax the most expensive debt first. The debt snowball method has you pay them off from the lowest to the highest balance, which offers immediate debt-payoff wins to help motivate you for the long journey ahead.
Neither method is right or wrong, it just depends on your debts and your preferences. A good free resource that can help you run the numbers and see the power of both methods is Undebt.it.

Negotiate with lenders
Although it can be scary, oftentimes, your current lenders can be your biggest help in making your debts affordable for your budget. Depending on your lender, you may be able to contact them and negotiate different types of debt assistance:
- A lower interest rate
- Temporary forbearance or deferment
- An extended loan term to help shrink monthly payments
- A lump-sum settlement in exchange for forgiving the remainder of the balance
Check for grants, payment plans, and other aid
There may be special programs available to assist you, depending on the type of debt you have and your other circumstances. If you have medical debt, for example, you may be able to take advantage of special personal loans or grants for certain conditions.
Many affordable payment plans and loan forgiveness options are also available for federal student loan debt, as well. If you’re on a limited income, you may also be able to take advantage of special grants and affordable loan options to repair or update your home to your current needs. Check 211.org if you need help finding available resources in your area.
Consider a debt management plan
When you sign up for a debt management plan, a credit counselor will reach out to your lenders for you to negotiate an interest rate reduction, fee waivers, and other ways to help lower your monthly payments to fit within your budget. You’ll then make one monthly payment to the credit counseling agency to distribute to your lenders. Typically, you’ll pay off your debt in three to five years and may even increase your credit score.
Debt management plans typically require a one-time startup fee of up to $75, followed by a monthly fee of up to $50. Agencies work on a sliding scale, however, and often waive fees for people on a limited income. Other support provided by nonprofit credit counseling agencies is usually free or offered at a low cost. You can find a reputable agency through the National Foundation for Credit Counseling.
Explore debt settlement
Debt settlement companies promote flashy and alluring advertisements about slashing your debt costs in half, if not more. Most experts caution against these companies because they require you to intentionally default on your debt, which results in even more debt via fees, interest, and possibly even legal action and wage garnishment. It also causes significant and long-lasting damage to your credit score.
Debt settlement or debt relief companies can often settle your debt for 50% less. However, most companies typically charge 25% of your initial debt, cutting your “savings” in half from what it first appears. When you consider extra hidden fees for required accounts and legal charges — and the fact that forgiven debts are considered taxable income by the IRS — you generally don’t save much, if at all. For most people, the stakes are generally too high for a risky gamble like this.
Look into debt consolidation
A debt consolidation loan allows you to combine multiple debts into one loan with a single monthly payment, potentially lowering your overall interest rate and making repayment more manageable. If you have bad credit, qualifying for a debt consolidation loan can be more challenging.
However, it is still possible—some lenders specialize in working with individuals who have less-than-perfect credit. You may need to provide collateral or accept a higher interest rate to offset the lender’s risk. Shopping around, improving your credit score, and considering alternative options like secured loans or co-signers can increase your chances of approval.
Leverage home equity
If you have sufficient equity in your home, another option is to borrow against it. You’ll still need to pass a credit check in order to borrow against your home equity, although the requirements are typically less strict than for unsecured debt such as a debt consolidation loan with bad credit.
There are many ways to borrow against your home equity:
- Home equity loan: A lump-sum loan featuring a fixed interest rate and stable monthly payments.
- Home equity investment (HEI): HEIs offer a lump sum of money in exchange for a portion of your home’s value in 10 to 30 years, repaid as one large payment rather than monthly.
- Home equity line of credit (HELOC): A line of credit that you can borrow against as you need during a draw phase, featuring a variable interest and a final repayment phase.
It’s important to consider these options carefully as well. Borrowing against your home will result in a lien being placed on it, and if you default on that debt, the lender can foreclose on your home.
Revisit your 401(k)
If you have money saved for retirement, you may be able to borrow some of those funds. A 401(k) loan has a couple of distinct advantages. There’s no credit check required since you’re borrowing your own money, and you’ll pay interest to yourself — not a lender.
This is risky, however, since if you lose your job or quit, you’ll likely need to repay the entire balance in full — something most people aren’t able to do. In addition, while paid to yourself, the interest rate offered is typically less than what you would earn if you had kept your money invested, meaning that you may lose out on investment gains.
Consider bankruptcy
A final option for many people is declaring bankruptcy, which can provide real help under the right conditions. However, it also comes with significant drawbacks. There are two types of bankruptcy.
Chapter 7 bankruptcy is the traditional type most people think of, where most of your property is sold (depending on your state) and used to repay as much of your debt as possible, with the remainder being forgiven. Chapter 13 bankruptcy is more similar to a debt management plan, allowing you to make steady debt payments for three or five years, after which time the remainder is forgiven.
All together, filing for bankruptcy can cost from $400 to $3,000 out of pocket. You’ll also have long-lasting damage to your credit since bankruptcies stay on your credit record for nearly 50% longer than any other negative mark, affecting your ability to secure other credit for the next 10 years.

Final thoughts
You don’t have to stay in debt forever, even if you don’t have the best credit. We’ve presented a range of options and ideas here for how to get out of debt with bad credit, no matter what type of situation you find yourself in. If you’re not sure how to proceed, a good first step is consulting a nonprofit credit counselor who can help you sort through your options and develop a plan to take the first steps toward a debt-free life.
No income? No problem. Get a home equity solution that works for more people.
Prequalify in 60 seconds with no need for perfect credit.
Show me my offer

Thank you for subscribing!
.webp)