Step By Step Guide How To Get Out Of Debt With No Money And Bad Credit

Step By Step Guide How To Get Out Of Debt With No Money And Bad Credit

At the beginning of 2023, I figured out that because of my poor financial decisions in the past, I accumulated around $51,000 in debt. The final ringbell was when I declined my friend’s offer to go on vacation together.

Well, this can’t continue anymore. It’s time to get rid of my debt and never return to such a state. I’ve decided to change my life.

This article will cover my personal decisions to pay off my debt.

Read a personal finance book

Before doing anything else, I’ve spent several hours listening to The Total Money Makeover: A Proven Plan for Financial Fitness audiobook to refresh my knowledge and craft the plan.

Even if I’ve already read and listened to many other personal finance books, I decided to do it again.

First, I refreshed my knowledge. And second, I received additional inspiration and motivation. Of course. Here’s my recommended list of finance books from my collection:

Transform Your Finances with the Best Budget Books

How to get out of debt on any income?

Basically, there’s only one major rule we have to follow to get out of debt, regardless of the income we have:

Your income should be higher than your spending every month

If not, we must create or revise our budget, optimize it to satisfy the above rule, and execute it daily.

No magic, guys, sorry.

And the last point:

The more significant positive difference between your income and spending, the faster you can pay off your debt

Creating a budget

First, I had to understand what was going on with my finances. Creating a monthly budget allowed me to assess my current state and answer the following questions:

  • How bad my current state is?
  • What I’m spending my money on?
  • Where I’m loosing money?
  • What are my financial habits?

Currently, I’m using Mint, Rocket Money, and Google Sheets for budgeting. The first two applications allow me to track all transactions in an automated way. Google Sheets allows me to model my cash flow and analyze how any purchase will impact it. Here’s how I’m doing it:

How to create a personal finance budget - Easy Guide

By the way, there are plenty of options besides Mint or Rocket Money:

Best Budgeting Apps

Doing finance analysis

As soon as I connected all my banking accounts to Mint, I was able to see my financial situation:

Andrei Maksimov - Net Worth - 2023-08-01

As you can see, I started sinking in Feb 2022 (the last moment when the black net worth line was at zero point) and have never recovered since then.

Now, my goal is to pivot the negative net worth trend. There’s no magic here. I have to cut costs and optimize my cash flow.

Cash flow optimization

To pay off accumulated debt, I can use the snowball or avalanche method:

Efficient Debt Management - Understanding the Snowball Method
Debt Relief - What is the Avalanche Method

I’ve decided to move forward with the avalanche method as soon as it allows me to save more money by paying high-interest debt first.

I don’t care about motivational factors as soon as I treat this challenge as a game where I can track progress by looking at beautiful charts of Mint, even if they are red now.

Before using the avalanche method, I had to optimize my cash flow. My goal is to make changes in the budget to keep the balance positive each month.

Andrei Maksimov - Net Income - 2023-08-01

To achieve this goal, I had to answer the following questions:

  • What caused negative balances over the last months?
  • How to avoid such situations in the future?
  • How can I significantly increase my income?
  • How can I significantly decrease spending?

I’ll leave your honest conversation with yourself up to you and focus on answering the last two questions. There are several options to consider.

What caused negative balances over the last months?

In my specific case, several factors led me to such a situation:

  • Not tracking my spending: I’ve tracked my spending but closed my eyes on overspending, hoping I’ll pay off this yet another small balance gap from the next paycheck or bonus.
  • Bad marriage: Some time ago, I chose a partner with bad financial habits, which led me to make many financial decisions I would never make again.
  • Impulse purchases: After the divorce, I had to recover, and during that time, I made many impulse purchases that I hoped would help me regain my “normal” life. For example, I bought a pre-owned motorcycle, which required significant repair afterward (additional expenses).
  • Inability to say “no” when needed: I could not say “no” to my friends when they invited me on weekend trips or vacations. The demonstration of my everyday life was more important than accumulated debt.

This list is far away from its completeness, but you probably got an idea.

How to avoid such situations in the future?

We are all human beings. And we are weak creatures. I don’t know how to avoid such situations in the future completely, but this is what I’m doing now:

  • I’ve set up a monthly budget in Mint for each spending category.
  • To eliminate overspending, I’ve made myself busy even more (working on this blog after work hours, for example) – we tend to spend less when we don’t have time.
  • While recovering, I review my budget to ensure I’m on track daily.

While the hard work is happening in the background, let me share more insights on my budget transformation.

How can I significantly increase my income as soon as possible?

I’ve reviewed several options for increasing my income. It could be achieved through various strategies. Here’s something I considered:

  1. Decrease cost of living: Moving to a smaller apartment or cheaper state while keeping the same income level might save you significant money. Moving from Long Island City, NY, to Maplewood, NJ, was my first step to improve my cash flow. I saved $1,500 on rent, which now I am partially spending on a car lease ($1,000), and dedicated the rest to pay off my debt ($500).
  2. Sell something: If you have a motorcycle, car, gaming console, or something else that might seem important but not essential for living, it might be a good option to sell it. This is probably the fastest way to get additional cash to pay off some debt. I will sell my motorcycle to pay off one of my credit cards by the end of this month.

The next set of options I decided to keep reserved:

  1. Debt consolidation: This option might be an acceptable choice to improve your cash flow by reducing monthly payments on all your debt obligations.
  2. Seeking a Raise or Promotion: If you’ve been with your company for a while and have consistently performed well, it may be time to seek a raise or a promotion. Prepare a case showing your value to the company and approach your superiors professionally.
  3. Changing Jobs: If your current job has limited room for growth, it may be worth looking for opportunities elsewhere. Research what similar positions pay in other companies and industries. I will unlikely use this option because I love Amazon and what I do there.
  4. Side Hustles: Having a side job or ‘hustle’ can supplement your income. This could be something you’re passionate about, like selling handmade crafts or a part-time job in your field.
  5. Freelancing or Consulting: If you have specialized skills or expertise, you might be able to find freelance or consulting work. Websites like Upwork or Fiverr can be a good place to start. Fiverr’s gig promotion algorithm is similar to YouTube – the more tasks you deliver while getting a 5-star review, the more clients Fiverr will send to it.
  6. Passive Income: Building a source of passive income, such as renting out a property, creating a popular blog, or writing a book, can also increase your income. But usually, it takes lots of time to get a significant amount of passive income to cover your expenses.

Here’s a list of options that I eliminated completely:

  1. Further Education and Certification: This strategy can increase income in the long run but will not help you ASAP. It takes time to gain new skills and start monetizing them.
  2. Investing: Saving and investing your money wisely can create an additional income stream. It can involve investing in the stock market, real estate, or starting a small business. Forget about this option if you need to do something right away.

Executing the plan

First of all, I’m stopping using credit cards. Completely. All my payments are going from a debit card only.

I’m transferring all my payments to the debit card as soon as I see that one or another internet service is charging me on credit. This helps to review and cancel unused subscriptions or minimize them by downgrading a subscription plan.

Over the next several months, I plan to use the avalanche method to entirely pay off my accumulated debt, starting with the cards with the higher Annual Percentage Rate (APR).

Andrei Maksimov - Debt - 2023-08-03

I plan to receive RSU stocks from my employer in the next few weeks. Almost all stocks will be spent on paying off debt obligations in the order in the picture above.

After that, I will save money for one month’s living. And continue paying off my debts.

As soon as I stay with only a car and personal loan, I’ll revisit my budget and start 401k contributions up to the maximum employer match.

Avoid debt payoff scams

Be cautious of companies that promise to eliminate your debt quickly or charge upfront fees for their services.

As I’ve navigated through the rough waters of debt, I’ve learned that it’s crucial to watch for debt payoff scams. These shady practices are designed to prey on those of us who are most desperate, promising an easy way out when they may push us deeper into debt. It’s disheartening, I know, but knowledge is power, and I want to share with you how to avoid these harmful pitfalls.

One tell-tale sign of a scam is if the company promises to “erase” your bad credit or remove any negative information from your credit report. From my experience, there’s no quick fix for bad credit. Repairing credit requires time, a realistic plan, and healthier financial habits. Additionally, if they ask for fees upfront before providing any services, that’s a huge red flag.

I cannot emphasize enough how important it is to do your research. Cross-verify with reputable sources, check for reviews, or consult a financial advisor if possible. Remember, if a deal seems too good to be true, it probably is. Stay strong, and stay aware. Together, we can find a legitimate path out of debt.


How do I pay off debt when I live paycheck to paycheck?

To pay off debt when living paycheck to paycheck, follow these steps. First, create a detailed budget to track your income and expenses. Identify areas where you can cut back, such as dining out or subscription services. Next, prioritize debt repayment by focusing on high-interest debts first (avalanche method) or starting with small debts for quick wins (snowball method). Consider increasing your income through side hustles or seeking a higher-paying job. Utilize windfalls, like tax refunds or bonuses, to make extra payments. Lastly, stay persistent and committed to your plan, making small adjustments. With discipline and determination, you can achieve financial freedom.

How do I clear my debt with a bad credit score?

To clear debt with a bad credit score, take proactive steps. First, assess your debts and create a budget to track income and expenses. Cut unnecessary spending and allocate more towards debt repayment. Consider debt consolidation to streamline payments and negotiate with creditors for better terms. Explore debt management plans or seek help from credit counseling agencies. Look for additional income sources like part-time work or freelancing. Paying on time and reducing debt will gradually improve your credit score. Patience and consistent efforts are key to overcoming debt and rebuilding credit.


Over the next several months, I will fight with myself and my debt while continuing to work on this blog. Usually, people are not sharing how they achieve any success in their life. I am going to do it almost in real time.

I hope this journey will inspire you to change your life, too.

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