A compass in a hand used to navigate debt reduction.

Navigating Debt Reduction With Bad Credit

If you are trying to reduce your debt, but have bad credit, you know it can be a challenge. Your debt level is likely high and options are probably limited, but it can be done. This article will help you discover some ways to finally pay down that debt, even with credit issues.

Don’t let bad credit stop you from reducing your debt. You may have less lending options at your disposal, but you can get the job done. Here is how.

Assess Your Debt Situation

First, you need to get organized. Gather all of your financial statements so that you can make a clear record of just how much debt you are dealing with. Make sure that you note account balances, minimum payments and interest rates.

The best way to get organized with your debt is to put all of this information into a spreadsheet. This will allow you to organize debt and filter it to determine such things as highest monthly payments and greatest interest rates. It will also allow you to update debt easily as you reduce it.

Consider Debt Consolidation

Even with bad credit, you still may be able to qualify for a debt consolidation loan. The catch is that your interest will likely be much higher than someone with good credit might receive. Still, there are benefits to even a higher interest debt consolidation loan.

For starters, the interest will probably be a little better. It might not save you hundreds of dollars a month in interest, but every dollar counts. Second, when you pay off your debt, you will also lower your credit utilization. That could boost your credit score, allowing you to then refinance this consolidation loan at a better interest rate.

Use A Debt Strategy

A debt reduction strategy can give you a template for paying off your credit card debt. The two most common strategies are the Debt Snowball method and the Debt Avalanche.

With the Debt Snowball method, you organize your debt in order of their balance from lowest to highest. You then proceed to pay off the lowest balance debts first. The idea with this method is that you get a lot of small wins very quickly by paying off low balance cards. This will motivate you to stick to the plan and keep paying off debt.

The Debt Avalanche method involves organizing your debt in order of interest rates with the highest interest rates at the top. Pay off the debt with the highest interest first. This will make the most of your money by eliminating the costliest debts first.

Make Room In Your Budget

A common complaint people make is that there is not any money left to pay down debt. If you are saying that to yourself, you need to make room in your budget. Here is how you do that.

Cut your expenses. You might not think there is anything that can be cut, but you are probably incorrect. Almost any budget can be trimmed by at least a hundred dollars and the people who say there is not room to cut usually do not even have a written budget.

Sit down and write all of your expenses out. Even better, enter them into a spreadsheet. Be sure to include fixed bills for housing, insurance and budgets for expenses like fuel and food. Once you have it written out, you  will be able to see where cuts can be made.

If you still need more room after making cuts, your next solution is to increase your income. Even working a few hours a week at a side gig can give you the cash you need to start paying down debt. Options are limitless. Drive for Uber, deliver for DoorDash or pick up some side-work from Facebook groups. You are only limited by your ambition.

Stay Committed To The Goal

Above all else, never give up on your dream of being debt free. Debt reduction is a journey best represented as a marathon, not a sprint. It will not happen overnight, but keep at it and you will reach your goal.

If you need help staying motivated along the way, there are plenty of groups with people like you that you can join. Look on Facebook, Reddit and private internet forums. The resources are out there.

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James Car is a finance, loan and budget expert based in the United States. After attending Brookhaven college, he went on to become a successful entrepreneur. He now enjoys writing articles that help people save and make the most of their money.