Debt elimination can be a challenging and stressful task, making it tempting to look for alternatives that will relieve you of your financial burden without having to pay off the debt.
There are ways to do this depending on the type of debt, such as Teacher Loan Forgiveness programs and Public Service Loan Forgiveness for those with higher education loans.
Credit card debt can be resolved through debt settlement programs or by declaring bankruptcy.
Some of the options, however, have drawbacks, such as the possibility of being sued or being forced to sell assets.
That said, this article compiles some alternatives to paying off your debt, as well as why doing so isn't always a good idea.
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What is a Debt?
Debt is an obligation that requires one party, the debtor, to pay another party, the creditor, money or other agreed-upon value. Debt is a delayed payment, or series of payments, as opposed to an immediate purchase.
A sovereign state or country, a local government, a company, or an individual may owe the debt. Commercial debt is typically subject to contractual terms governing the amount and timing of principal and interest repayments.
Debt includes loans, bonds, notes, and mortgages. Debt, as opposed to equity, is a type of financial transaction in financial accounting.
The term can also be used metaphorically to refer to moral obligations and other non-monetary interactions.
In Western cultures, for example, a person who has been helped by another person is sometimes said to owe the second person a "debt of gratitude."
How to Get Rid of Debt Without Paying
Debt may appear to be uniform, but each type is distinct. Your options will be determined by the type of experience you have.
Before you get rid of debt without paying, make sure you understand the limitations and long-term consequences of doing so.
How to Get Out of Student Loan Debt Without Paying
There are a few options for avoiding student loan payments. Your loan, employment status, and, in some cases, the school you attended will all play a role in determining your eligibility for these programs:
- Income-driven repayment plans: — These repayment plans limit your monthly payments to 10 to 20% of your monthly income for the next 20 or 25 years (depending on the plan). The remaining loan balance is then forgiven. "Taking this route can help you eventually get out of debt, but it will take a long time," says Leslie Tayne, founder of Tayne Law Group. "You may also have to pay taxes on the forgiven amount." However, due to the pandemic, the tax implications are currently paused until 2025."
- Public Service Loan Forgiveness: — This program is available to those who work in the public sector, such as government workers and nonprofit employees. The remainder of your direct loans will be forgiven once you have made 120 qualifying payments while working full-time for a qualifying employer. "While pursuing Public Student Loan Forgiveness requires less time than trying to follow an income-driven repayment plan," Tayne says, "your employment options will be limited." "What's the good news?" Any forgiven balance will not be taxable income."
- Teacher Loan Forgiveness: — If you work five consecutive years at a low-income elementary or secondary school or at an educational service agency, you may be eligible for forgiveness of up to $17,500 in Direct Loans or Stafford Loans.
- Teachers, firefighters, and law enforcement officers, among others, are eligible for Perkins Loan cancellation or discharge. Cancellation can occur over a five-year period, whereas discharge can occur in the event of bankruptcy, death, or disability.
- Closed school discharge: — If your school closed while you were attending (or shortly after you withdrew), you may be eligible for a discharge of your federal student loans.
- Options for discharge: — Loans may be discharged in the event of death, permanent disability, or – very rarely – bankruptcy.
Most options will require you to make qualifying, on-time payments each month. Even so, not everyone qualifies for or receives forgiveness.
For example, less than 1% of applicants for Public Service Loan Forgiveness were approved and considered eligible.
A defaulted loan cannot be forgiven, but it may be eligible for discharge depending on the loan and the program.
Read Also: Can you pay student loans with credit card?
How to Get Out of Credit Card Debt Without Paying
If you have more credit card debt than you can handle, you have a few options; however, you should consider the consequences first. Here are some possibilities:
- Stop paying your credit card bill: — If you choose this option, the debt will be turned over to a collection agency, and your credit score will suffer greatly. However, most states have a statute of limitations for how lengthy lenders can sue you for outstanding credit card debt, which ranges from three to ten years. You could skip payments, but you might be held accountable later. "Technically, you can stop paying your credit card bills, but it's not recommended," Tayne says. "It will make borrowing money difficult for you for years to come." Furthermore, you will be harassed by creditors and collection agencies, and you may even be sued."
- Debt settlement: — Another option is to settle your debt with your current lender (or collection agency, if you've reached that point) for less than what you owe. "Debt settlement is an agreement between you and your creditor in which the creditor agrees to accept less than the amount owed to satisfy the debt." "Generally, amounts range between 50 and 80 percent of the balance," says Katie Bossler of GreenPath Financial Wellness. "You can either negotiate your own settlement or hire a lawyer to do it for you."
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How to Get Out of Debt Through Bankruptcy
Bankruptcy should only be considered if all other options have been exhausted.
Filing for bankruptcy may appear to be a fresh start, but depending on the type of bankruptcy you choose, you may still be responsible for some of your outstanding debt:
- Chapter 7: — Some of your assets are sold to repay debt in a Chapter 7 bankruptcy filing, which means you could lose your home and personal property. Your remaining debt will be discharged a few months after you file, though Chapter 7 typically does not cover things like student loan debt or child support.
- Chapter 13: — In a Chapter 13 filing, you are placed on a court-ordered repayment plan. Any remaining debt after a certain period of time, such as five years, may be discharged. This process means you'll spend even more time paying off your debt, and a bankruptcy filing will appear on your credit report.
A bankruptcy filing could stay on your credit report for up to 10 years, depending on the type of bankruptcy you file, which is why it's critical to carefully weigh your options and outstanding debt.
Debt collectors cannot attempt to collect a discharged debt, nor can they continue collection activity while the bankruptcy case is pending — but the filing itself will have long-term consequences for your financial situation.
Why Not Paying Debt Doesn't Work?
Getting rid of debt without paying it off can have a number of negative and long-term consequences. Some examples are:
- Poor credit
- Difficulty borrowing money in the future
- Harassment from creditors and collection agencies
- Lawsuits
- Increased cost for borrowing money in the future
Your credit report is an important part of your financial health. Defaults, collections, and bankruptcies wreak havoc on your credit score, affecting your future in a variety of ways.
"You may be unable to obtain favorable interest rates or insurance premiums," warns Bossler. "It could have an impact on employment, housing, and other areas."
If you avoid payment, creditors may sue you for unpaid bills. In some states, your wages or assets may be garnished or seized. You are still paying your outstanding debt even if you are not making direct payments.
Alternatives to Bankruptcy
You should take advantage of any opportunity to avoid bankruptcy. Consider the following alternatives:
- Supplement your income: — Do whatever you need to do now to begin paying off your debt. If possible, ask for a raise or move to a higher-paying job. Get a second job. Begin selling valuable items, such as furniture or expensive jewelry, to cover the outstanding debt.
- Request assistance: — Inquire with your lenders and creditors about reducing your monthly payment, interest rate, or both. You may be eligible for temporary relief with student loan forbearance or deferment. See what your lender or credit card issuer has to offer in terms of hardship assistance for other types of debt. If you have the means, see if your friends or relatives can offer you help.
- Take out a debt consolidation loan: — If you have a variety of debts, consider consolidating them. Taking out a debt consolidation loan is a good way to simplify your finances by consolidating all of your debt and potentially paying less interest in the long run.
- Seek professional assistance: — Contact a non-profit credit counseling organization to set up a debt management plan. Every month, you'll pay the agency a set amount that will be applied to each of your debts. The agency works on your behalf to negotiate a lower bill or interest rate and, in some cases, to have your debt canceled.
Final Thoughts: How to Get Rid of Debt Without Paying
It may have seemed that getting out of a huge debt trap will take a lifetime. You have the option of skipping payments, not paying at all, or declaring bankruptcy.
While you may be able to avoid paying your outstanding debt in certain circumstances, the chances are slim. And, more often than not, avoiding paying your outstanding debt is detrimental to your financial well-being.