Getting out of debt can be a difficult task, especially when you have a large outstanding balance. However, there are ways to get rid of your debt without actually paying off the balance.
There are a few options available to those struggling with student loan debt. The Teachers Loan Forgiveness program and the Public Service Loan Forgiveness program may be viable options. Another option for those with credit card debt is to enroll in a debt settlement program or file for bankruptcy.
However, there are also risks associated with these options, such as being sued or having to sell assets. It is important to understand how they work and weigh the pros and cons of each before making a decision. You may find that repaying what you owe is the best choice for your overall financial health.
How To Get Out Of Debt Without Paying
There is no one-size-fits-all approach to dealing with debts. The type of debt you have will dictate the best course of action. Before making any decisions, be sure to understand the implications of each option.
Paying Off Student Loans Without Paying Interest
Student loan payments can be a burden, but luckily, there are a few options for getting out of them. Your loan type, job status, and even the school you attended can affect your eligibility for different programs.
- Income-driven repayment plans: There are several repayment plans available that can reduce your monthly payments to a manageable level. Depending on the plan you choose, you may be able to have your remaining loan balance forgiven after 20 or 25 years. While this can be a helpful way to eventually get out of debt, it will take a long time to reach that point. Additionally, you may have to pay taxes on the forgiven amount when the pause on tax implications expires in 2025. However, this may be worth considering if you are struggling to make ends meet each month.
- Public Service Loan Forgiveness: The Public Student Loan Forgiveness program is a great opportunity for those who work in the public sector. After you’ve made 120 qualifying payments while working full-time for a qualifying employer, the rest of your direct loans will be forgiven. While pursuing Public Student Loan Forgiveness takes less time than following an income-driven repayment plan, your employment options will be limited. The good news is that any forgiven balance will not be considered taxable income.
- Teacher Loan Forgiveness: After five years of teaching at a low-income elementary or secondary school, you may be eligible to have up to $17,500 of your Direct Loans or Stafford Loans forgiven. Educational service agency employees may also qualify for this loan forgiveness program.
- Perkins Loan Cancellation: Different public servants may be eligible for Perkins Loan cancellation or discharge. Cancellation can occur over five years, while discharge may happen in the event of bankruptcy, death, or disability.
- Closed school discharge: If your school closed while you were attending (or soon after you withdrew), you may qualify to have your federal student loans discharged.
- Discharge options: In the event of death, permanent disability, or bankruptcy, your loans may be discharged. This is rare, but it does happen.
There is no guarantee that a defaulted loan will be forgiven, but it may be eligible for discharge depending on the type of loan and program.
Getting Out Of Credit Card Debt Without Paying
If you have more credit card debt than you can handle, you have some options:
- Stop paying your credit card bill: There is a statute of limitations for how long creditors can sue you for outstanding credit card debt, which varies from three to 10 years in most states. However, technically, you can stop paying your credit card bills. It will make it difficult for you to borrow money for years to come. Plus, you’ll get hounded by your creditors and collection agencies and could even get sued.
- Debt settlement: An alternative to declaring bankruptcy is debt settlement, which involves negotiating with your current lender (or collection agency) to pay back less than what you owe. Debt settlement is an agreement where the creditor agrees to accept less than the amount owed to satisfy the debt. Amounts typically fall in the range of 50-80% of the balance. You can negotiate your own settlement or hire a lawyer to negotiate on your behalf.
Falling behind on your credit card payments can have serious consequences for your credit health. Your creditors can sue you for failing to pay the collection agency, or they may not agree to the terms of a settlement offer. Either way, it is important to stay on top of your payments and work with your creditors to keep your credit in good standing.
Get Out Of Debt With A Bankruptcy
Filing for bankruptcy may seem like you’re starting over, but it’s important to consider all your options before making a decision. Depending on the type of bankruptcy you pursue, you may still be responsible for some of your outstanding debt:
- Chapter 7: When you file for Chapter 7 bankruptcy, some of your assets may be sold to pay off debts. This could include your home and personal belongings. After a few months, your remaining debt will be discharged. However, Chapter 7 bankruptcy typically does not cover things like student loan debt or child support.
- Chapter 13: A Chapter 13 bankruptcy filing allows you to set up a court-ordered repayment plan. Any remaining debt after the specified time period (usually five years) may be discharged. However, this process can take longer and will result in a bankruptcy filing on your credit report.
Bankruptcy can have a significant impact on your credit report for many years. It is important to carefully consider your options and outstanding debt before filing for bankruptcy. Once you have filed for bankruptcy, debt collectors are not allowed to attempt to collect the debt or continue any collection activity. However, the bankruptcy filing itself will still have long-term effects on your financial health.
Even after filing for bankruptcy, there is a chance that some of your debt balances will still need to be paid off. Additionally, the negative effect that bankruptcy has on your credit score can end up costing financially for years to come.
Why Not Paying Debt Is Not A Good Idea
Leaving debt unpaid can have severe consequences that last a long time. Some of these are:
- Poor credit
- Difficulty borrowing money in the future
- Harassment from creditors and collection agencies
- Lawsuits
- The increased cost of borrowing money in the future
Credit reports are one of the most important aspects of financial planning. A bad credit score can impact many areas of life, from getting a loan to renting an apartment.
Ignoring your debts can have serious consequences. Creditors may sue you for unpaid bills, and in some states, your wages could be garnished or your assets seized. Even though you’re not making the payments directly, you’re still responsible for the debt.
Bankruptcy Alternatives
If you have the chance to avoid bankruptcy, you should take it. Here are some alternatives to consider:
- Ask for assistance: Don’t be afraid to ask your lenders and creditors for a little help. You may be surprised at the relief they can offer you in the form of lower monthly payments, reduced interest rates, or even both. Student loans often have forbearance or deferment options available for those experiencing hardship. And many other types of debt come with hardship assistance programs from lenders and credit card issuers. Finally, don’t forget that friends and family can be great resources in times of need.
- Get professional help: Debt management plans can help you get your debts under control. You pay a monthly amount to the credit counseling agency, which then uses that money to pay off your debts. The agency may be able to negotiate lower interest rates or monthly payments on your behalf, and in some cases, they may even be able to get your debt canceled.
- Supplement your income: Do not wait any longer to start paying off your debt. You can ask for a raise at work, look for a higher-paying job, or start a side hustle to earn extra money. Another option is to sell valuable items to cover the outstanding debt.
- Take out a debt consolidation loan: There are many benefits to consolidating your debt into one loan. This can simplify your finances and potentially save you money on interest payments in the long run. A consolidation loan can help you take control of your debt and get back on track financially.
The Bottom Line
There are many debt relief options available that can help you get out of debt without having to repay what you owe. However, these methods can often have negative long-term impacts that outweigh the short-term benefits. Before choosing a debt relief option, be sure to consider all the potential consequences,
Each approach has its own set of pros and cons that you should consider before making a decision. In some cases, trying to get out of debt without paying could actually do more harm than good in the long run.
