You might fall under a debt burden when you cannot pay your personal loan on time. As a result, your credit score will also drop due to defaulting on your loan, ultimately leading to a bad credit situation. Coming out of that debt burden is a challenge, especially if you don’t have sufficient funds added with a poor score. If you find yourself in such a situation, you need not worry as there are still ways to get out of debt. Therefore, read this article further to find out how to get out of the debt burden even if you are short of money and improve your credit score.
5 Simple Ways To Get Out Of Debt With No Money And Bad Credit
Plan Your Budget Beforehand
The first step to managing your money is to create a budget plan. Budgeting helps you plan, prioritize and control your spending effectively. Moreover, it also helps you make better decisions and gives you a clear idea of how much you can afford to spend on your monthly debts. A simple tip for planning your budget is keeping a separate tracker for daily, weekly, and monthly expenses. And keep some amount aside for savings and debt payments as soon as you get your monthly salary. By doing this, you can easily clear your debts.
Make A Strategic Plan To Repay Your Debts
Once you have planned your budget, the next step is prioritizing your debt payments. List out all your pending debts with balance and interest rate. Prioritize all your accounts according to the interest rates; for example, pay your highest interest rate debt first or low balance debt first according to your budget. The main purpose of planning your debts is to evaluate your affordability to repay your debts. As a result, you will make ways to clear your debts without stress.
Find Ways To Cut Off Expenses
It is very important to review your monthly expenses and track where you spend unnecessary money. Make small changes to cut down those expenses and plan your budget for the next month accordingly. Next time you feel like making an impulse purchase, ask yourself whether it is necessary to buy right now and try to postpone it. By doing this consciously, you will reduce spending your money and keep those amounts for debt payments.
Find Ways To Increase Your Income
Don’t always rely on only one source of income to clear your debts. Start searching for ways with which you can make money additionally apart from your monthly income. You can take a part-time job, freelance, make money from your hobby or start a small business. Therefore, an additional source of income will make it easier for you to repay your debts faster.
Take Help From Consumer Credit Counseling
If you find it difficult to repay your debts, you can take professional help from a credit counselor. They will help you review your finances and plan a budget to repay your debts by making a Debt Management Plan (DMP). It often includes low monthly payments to your creditors, where you will make one monthly payment to your credit counselor, who will distribute that payment to each of your creditors. You can also seek assistance from Debt Relief Programs if your situation is very complicated to repay your debts. And pursuing debt settlement is the last option because it involves stopping payments. Here you have to work with a firm that holds the money in custody where they negotiate with your creditors to reach a debt settlement. However, this process will take up to four years and can further damage your credit score.
How To Get Out Of A Bad Credit?
Having outstanding debts affects your credit score negatively. And if you have a score anywhere between 300 to 550, you fall under bad credit. Moreover, having a bad credit score will make it difficult for you to take a personal loan for debt consolidation. So, here are tips to improve your credit score that will help you clear loans.
Review your credit report:
Your credit is susceptible to errors affecting your scores. So, regularly checking your credit report using Buddy Score once a year to identify and rectify any potential threats beforehand is essential.
Repay your debts on time:
The payment history accounts for 35% of your FICO score and has the biggest impact on your score. Therefore, repay all dues on time without defaulting. You can also set reminders to make payments on time to avoid missing out on bills.
Maintain your Credit Utilization Ratio:
Credit utilization accounts for 30% of your FICO score. It shows your credit utilization from the given credit limit. Therefore, lenders expect you to maintain the Credit Utilization Ratio to be less than 30% of your credit limit.
Avoid multiple hard inquiries:
Avoid applying for a loan to multiple lenders as it will generate a hard inquiry whenever each lender conducts a credit check to determine your creditworthiness.
EndNote
Sometimes we might get into a debt trap when we take loans more than required. And repayment of debts becomes even more difficult when you are short of money and have poor scores. Following the steps mentioned above can help you come out of your debt steadily. However, it would be best if you also kept in mind the tips mentioned above to improve your credit score simultaneously. And when you have a good score, you can get a personal loan using Buddy Loan at lower-interest rates. Last but not least, you must apply for a loan only when it is necessary after checking your ability to repay the debts.
