Getting Out of Debt with No Money Saved

January 31, 2019 · 7 minute read

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Getting Out of Debt with No Money Saved

It often feels like a hopeless situation when you’re saddled with debt and, as a result, can’t seem to grow that nestegg. You’re not alone, though: Americans’ debt hit a new high of $13.51 trillion in the third quarter of 2018, according to the New York Fed.

That surpasses the previous high of $280 billion, set in 2008. Americans under age 35 owe an average of $67,400; Americans between the ages of 35 and 44 owe an average of $133,100 .

“Younger people are taking on debt at a higher rate and paying it off at a lower rate,” Lucia Dunn, an economics professor at Ohio State University who has studied consumer debt, told Money magazine. “When they reach age 75, the debt picture for them will look a lot different than what we currently see. When you project out these trends, it is not so optimistic.”

MarketWatch reported in 2017 that half of American households currently live paycheck to paycheck; 19 percent have $0 saved to cover emergency expenses, and just 31 percent have less than $500 in emergency savings.

A recent Gallup poll found that ⅓ of all Americans (32 percent) maintain a household budget; only 30 percent of Americans have a long-term financial plan that includes savings and investment savings.

Depressing, yes, but there are steps you can take now to help avoid becoming a statistic. Here are just a few of them:

Begin by Creating a Budget

Note that this is suggestion #1. A budget is key to paying off debt when you don’t have a lot of money, because it gives you a bird’s-eye view of where you are spending your money and where you may need to spend less.

Living day to day and not knowing where your money is going is not going to help you to pay off your debt. When you see your spending habits on a monthly spreadsheet, it can be a powerful revelation. You’ll probably realize things about your finances that you never knew before.

Defining “Broke”

Being broke means having absolutely no money. More than likely, you do have money; you’re just overspending it, or maybe even spending what you don’t have (on credit cards).

It’s easy to free up some money if you’re already earning it regularly. Rethink money-draining activities like eating out too often, buying a coffee when you can make it at home, and perhaps spa or gym memberships when you can work out in cheaper ways (walking, running, workout videos on YouTube).

Increasing Your Income

It’s a gig economy, so get giggy with it. If you already have a full-time job, find a part-time one, or consider freelancing or selling some of your junk online.

Maybe drive an Uber or Lyft car. If you have a hobby (making jewelry, gardening, or fixing cars), you may be able to turn that into a money-making side business.

Changing Your Spending Habits

When you take a cold, hard look at the way you spend (and what you spend on), you could probably make some changes, line by line.

Perhaps it can start with buying no-name products at the store, consider discounted clothing, use public transportation, coupons or money-saving phone apps, cheaper (but healthier) food, borrowing from the library instead of buying new books, and perhaps even cutting or reducing your streaming service. And start packing your lunch.

Saying No to Temptation

Yep, it’s easier said than done, but keep your eyes on the prize: being debt free. That means saying no to expensive vacations, a new car, eating out, buying expensive gifts, going regularly to the nail salon, buying fancy new clothes, living in a higher-rent apartment, and wasting electricity. There are plenty more suggestions, but you get the idea.

Enroll in an Automatic Deduction Savings Account

Many banks and online financial service companies offer savings accounts that can deduct an amount from your checking account on a predetermined (by you) schedule.

Simply set it and forget it. This allows you to save what you can on a consistent basis. It can really add up, especially if you don’t need to remember to do anything. When you check your balance, you’ll probably be surprised at how fast it adds up.

Establishing an Emergency Fund

That automatic-deduction savings account can double as your small emergency fund. Use it only when needed. Train yourself not to sip from it otherwise. If an emergency does arise, you might possibly be able to cover it with the money you’ve saved from this fund, and you wouldn’t have to use your credit card yet again.

Applying for a Lower Interest Rate

High-interest rates are a curse. Most of your minimum monthly payment goes to those interest charges, not your principal debt. If it’s a no-go with your credit card company, you may be able to pay off your debt with a personal loan with a lower interest rate.

Considering a Personal Loan

Consolidating your credit cards and even your student loans into one low-interest personal loan could be your first step in the journey away from being broke.

With a (hopefully) lower interest rate and a fixed monthly payment, you can always know what you’re paying. That’s good for your budget. It helps make it easier to pay off your high-interest credit cards and loans, and greatly simplify your life.

With a low-rate SoFi personal loan, for example, you typically make fixed monthly payments of both principal plus interest. You can even figure out ahead of time how much money you could save in interest payments by using our Personal Loan Calculator.

A SoFi personal loan is an unsecured loan, which means that you do not have to provide collateral for it, like a house or a car. The process for getting approved is typically a breeze, as long as you are realistically estimating the amount you need and your credit score is good (you may want to check it before applying), among other financial factors.

Aside from all of these suggestions, one of the most important tips for combating debt is psychological. Stay strong. Think of the progress you’re making, even just day to day.

If the amount of debt you still have discourages you, think of the amount of debt you have paid off so far. It can be done, and you’re doing it. It’s progress.

Reward yourself (sensibly). First, take a look at your budget and your debt tracker and congratulate yourself for a job well done. If you slip here and there, just get right back on the horse and keep going.

Try not thinking about your debt after your monthly bills are paid. Do something fun that has nothing to do with spending money. Read a book or watch a movie. Take a walk with a friend. Stare at the stars.

Whatever you do, don’t give up. Tell yourself that you are going to make it. Think about how great it will be when you are finally debt free.

Keep in mind why you are striving to rid yourself of debt. Each time you make a payment, you’re freeing yourself up just a little bit, and you’re working your way toward a better budget. And being debt free.

See how a SoFi personal loan can help you pay off your debt at a lower interest rate.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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