Bad Credit? You Still Have Tools to Whittle Down Debt

A credit score below 630 can make it hard to get out of debt. But you have options, including secured loans, debt management plans and bankruptcy.
Amrita Jayakumar
By Amrita Jayakumar 
Edited by Kathy Hinson
Bad Credit? You Still Have Tools to Whittle Down Debt

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There’s no easy way to get rid of debt. But a bad credit score — typically below 630 — can make it even harder.

In 2012, Cara and Jesse Nuno had more than $270,000 in debt between them and credit scores below 600. The Minnesota couple considered bankruptcy but couldn’t afford the attorney fees, and Cara had a disability that prevented her from working.

The Nunos turned to a credit counselor, who helped them create a budget and negotiate debts with creditors. Then, with income from Jesse’s jobs, the couple paid off their debts in five years. Cara’s score rose above 660, while Jesse’s hit 758, which is considered excellent. They bought a house this spring.

“It was just hard to get started, but once we got started, everything fell into place,” Jesse Nuno says.

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If your score doesn’t sparkle enough to get a balance-transfer credit card or debt consolidation loan — two common ways to pay off debt — you still have options. Here they are:

1. Secured or co-signed personal loan

While most credit card issuers require good credit, lenders can be more flexible. They may offer options like pledging your car as collateral or allowing a co-signer, someone with better credit who’s willing to apply for the loan with you.


  • Better chance of qualifying

  • Can use a lower-interest-rate loan to pay off high-rate debts, saving money on interest


  • Your car may be repossessed if you fall behind

  • If you don’t pay, your co-signer must pay or risk credit score damage

2. Debt management plans

If debt weighs on your mind, credit counselors can offer budgeting and debt payoff advice, says Elaina Johannessen, program director at LSS Financial Counseling, the Minnesota nonprofit credit counseling agency that helped the Nunos.

Counselors also offer debt management plans that involve negotiating with creditors for lower interest rates on your debt. You make a single monthly payment over three to five years to pay it off.


  • You pay less overall, thanks to lower interest

  • You have a plan to get out of debt


  • Cannot use credit cards while on the plan

  • Not all debts can be negotiated

  • Counselors charge a monthly fee

3. Bankruptcy

It carries a stigma, but bankruptcy lets you wipe the slate clean and can protect assets like your home and car.


  • Most people retain assets in a Chapter 13 bankruptcy

  • Credit scores rebound in months


  • Mark stays on your credit report for up to 10 years

  • It may be hard to get new credit accounts

  • Attorney fees can be expensive

  • Does not erase some debts, such as student loans and child support

What to avoid if you have bad credit

Taking a loan against home equity or retirement accounts is drastic and risks your home and future, says Tasha Bishop, director of operations and development at Apprisen, an Ohio nonprofit credit counselor.

Some debt settlement companies promise to reduce your debt for a fee, but they could be scams, Bishop says.

If you can wait, make a budget to free up money for debt repayment — whittling down balances will help your score.