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By Thomas Racca | September 23, 2021  

As a financial advisor, one question I’ve heard frequently over the years is, “How can I pay off my debt (or improve my finances) if I don’t have much money and have bad credit?” I understand the problem. When your credit is poor, certain options like a consolidation loan or balance transfer may not be available to you. However, in my experience, people in this situation often don’t realize that there are things they can do to improve their situation.

Finding a Solution

Let’s face it, we’re all in different situations, and most of us have multiple (and usually competing) financial goals. Although there’s no one-size-fits-all solution, there’s a huge variety of tools and options available. Here are a few.

First Things First: Revisit Your Budget

Before you can improve things, you need to know what you have to work with. So, revisiting your budget is the first thing on your agenda. It may not be fun, but it’ll make your whole financial picture clearer. Be honest on whether each thing is a need or a want. The idea is not to cut out fun. It’s to figure out how you can pay for the things you need and want.

Some Budgeting Options

  1. Use a Traditional Budget. With this method, you start by listing all your sources of income. Next, list the amount you’re spending for expenses (e.g., rent, food, debt payments, insurances, transportation, internet), as well as what you plan to set aside for savings and other financial goals. See if there are optional things (e.g., streaming service, gym membership) you can trim to help you save.
    Check your monthly credit card and bank statements to see exactly how you’re spending. If you’re not sure where to begin, our interactive budgeting worksheet can help you get started.
  2. Set Up 2 Checking Accounts. Some people find that having 2 different accounts can help them avoid overspending. One account is set up for fixed expenses like rent, debt, child care, utilities and insurance. (Think of things that could cause you to pay late fees, have service canceled or create more debt.) The other account is for everything else (groceries, adding to emergency savings, entertainment).
  3. Create a 50-30-20 Budget. The 50-30-20 method breaks down your budget like this:
  • 50% of your funds go to needs (food, housing, phone, debt, etc.)
  • 30% of your funds go to wants (entertainment, shopping)
  • 20% of your funds go to saving for the future (retirement, emergency fund, vacation, gifts, new car or repairs)

By looking at your budget with these 3 buckets in mind, it may be easier to prioritize or set limits.

Work With a Financial Advisor

Navy Federal members can take advantage of our free personal financial counseling service. If you’re Active Duty, reserve or their qualifying dependent, the U.S. Department of Defense also offers free financial management information and counseling services.

Consider a Simple Debt Reduction Plan

We’ve seen people have great success getting control of their finances by paying a little more on one bill each month. Two tried-and-true methods to accomplish this are the avalanche and snowball plans.

  • Avalanche Method. With this approach, you make all your minimum payments except for the account with the highest interest. On that one, you add extra to your monthly payment. When it’s paid off, you add that payment amount to the one for the bill with the next highest interest, and so on until you’ve paid off all your debt.
  • Snowball Method. Some people prefer paying off smaller debts faster. With this method, you make all your minimum payments, but add extra to the account with the smallest balance. Then, when that one’s paid off, use that money to pay down the next smallest bill.

Things You Can Do Right Now

By now, you may be thinking, “Okay, but are there ways to make a difference right now?” The answer is yes. Here are just a few:

  1. Ask for a different due date. Are your monthly payments due right when you have the least money? Contact your creditors to ask for a different due date. Pick one that’s within a day or 2 of when you get paid.
  2. Ask for a lower interest rate. I always say, “It never hurts to ask.” Ask creditors if you can get a lower interest rate or more time to pay back your debt. It may lower your monthly payment.
  3. Find cheaper options. Do a little research on less expensive options for cable, internet, insurance, telephones, or other products or services you use. Not sure you want to switch providers? Ask yours if they’ll match competitors’ prices, have discount programs or if you can shift to a cheaper plan. While you’re at it, decide whether anything could be eliminated.
  4. Make extra money. If you’re looking for a side hustle, we often suggest trying some of the following:
        WAHVE (many of our members are using this for a work-from-home option)
        The Penny Hoarder (forums, blogs, top 10 lists, sites)
        Temp agencies in your local area
  5. Ask about assistance programs. Don’t be afraid to ask for help. Many creditors, like Navy Federal, will work with you to help you get back on track. Ask what type of assistance is available and what you need to do to apply. I know this can be a game changer because I’ve seen it first-hand.
  6. Monitor your credit score. It’s a good idea to watch your credit score. As your debt situation improves, so will your credit score. And, that will mean that if you need credit in the future, you’ll be more likely to qualify and more likely to get better terms from a lender.


If you’re a Navy Federal member, our Mission: Credit Confidence® Dashboard will show you where you stand in minutes. Plus, you can see what things affect your score and get a heads up if anything changes—all without affecting your score.

A word about debt consolidation services. Although there are companies that offer to help you negotiate with creditors or pay your debts faster, be aware that they usually charge a fee for their services. Some companies that advertise themselves as debt consolidation services may actually be debt settlement companies. A debt settlement company may try to convince you to stop making payments to your creditors and, instead, ask you to pay into a special account. But, not paying creditors could lead them to consider your accounts as delinquent and move them to collections status. This will further damage your credit.

You Can Do It—Just Keep Trying

One of the most satisfying things about my job is hearing people’s success stories. Recently, a colleague told me about a call she received from a member she’d been working with for about a year. During the call, the member excitedly explained that because we helped her plan a way forward, she was able to purchase her first house. We were so happy for her!

Just remember that getting control of your debt is like any other goal. Keep at it, even if you don’t always do things perfectly, because in the end, you’ll be further ahead than you were before.

We’re Here to Help—And It Won’t Cost a Thing

Navy Federal members can get free personalized financial guidance, regardless of their financial situation. We offer tips and help with everything from planning for the here and now to working through hardships and planning for the future. Let's get started

  • Goal Setting
  • Budgeting
  • Financial Recovery

Author Bio: Thomas Racca is the Manager of Navy Federal Credit Union’s Personal Finance Management Services.


This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.