How to Get Out of Debt: 4 Ways to Be Debt Free —

Whether you owe thousands of dollars or hundreds of thousands, any amount of debt that’s too big for your budget is going to cause problems. Once your emergency fund is drained and you’re living paycheck to paycheck, it can seem almost impossible to catch up. If you want to regain control, you need to determine how to get out of debt effectively in your situation. But how do you do that when money is already so tight?

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4 ways to get out of debt

There are four basic ways to get out of debt:

  1. Prove it’s not yours
  2. Pay it off
  3. Qualify for debt forgiveness
  4. Find a way to discharge it

Which ones apply depend on what type of debt you owe, the amount of debt you have, and your financial situation. This page is designed to help you understand these options. If you have questions or need professional help to find the best solution for you, visit’s Solutions Center.

The best way to get out of debt without paying: Prove it’s not yours

Wondering how to get out of debt without paying anything at all? All you need to do is prove the debt is not yours to pay. If you don’t owe it, then you don’t have to pay it.

This solution is most commonly seen with debts in collections. Debt buyers buy and sell collection accounts, often with incomplete paperwork. They have a name on the account that they try to match with a real person that they can call to collect. And they don’t always have the right person.

So, if you ask them to verify that the account is yours and if they can’t do it, you can tell them to stop contacting you. You can also dispute the collection account on your credit report to have the account removed. Simply contact any credit bureau that issued a report where the debt appears to dispute it. When the collector can’t verify that it’s yours, it must be removed. This is a process known as credit repair.

How to get out of tax debt without paying

There is a special exception for not paying debt that’s only related to back taxes. It’s basically a special designation that tells the IRS a debt is not yours to pay. This is known as Innocent Spouse relief. If your spouse runs up tax debt without your knowledge and you can prove it, you aren’t required to pay. Essentially, you are not “jointly liable” because you show that you didn’t know there was any debt owed.

Finding the best way to get out of debt if you have to pay it

In most cases, the least detrimental way to get out of debt is to pay it off. If you legitimately owe a debt, then you need a cost-effective solution that gets rid of it quickly. Paying it off often also allows you to avoid things like credit score damage.

There are four ways to get out of debt faster if you must pay it back:

SolutionWhat It DoesWhen It Works BestRefinancingReduces the interest rate applied to the debt, so you can get rid of debt faster.When you have a single debt to pay off and your credit score is better than when you first applied.ConsolidationCombines multiple debts of the same type into a single monthly payment at a low interest rateWhen you have multiple debts to repay and individual bills have taken over your budget.Repayment planA professionally assisted form of consolidation that offers structured, fixed monthly payments.When your credit score is low or you have too much debt to repay effectively on your own.SettlementYou pay back a portion of what you owe to discharge the remaining balanceWhen you aren’t worried about credit damage.

How to get out of credit card debt fast

High interest rate credit card debt typically requires consolidation or a professional repayment plan, known as a debt management program. You can use interest rate negotiation to reduce high interest rates on individual accounts. However, this still means making regular payments to pay it off.

Credit card debt consolidation can give you a faster, money-saving way to pay off everything you owe. Using a personal loan to pay off credit cards is the most common type of consolidation. You can go through your bank or credit union, another financial institution or an online lender. Consolidation loans are often the best option if you have a good credit score and owe less than $30,000.

If you have bad credit or owe more than $30,000, then you probably need professional help to get out of debt fast. Enrolling in a debt management program is also generally the right solution if you have low income and need lower monthly payments. People who qualify usually see their total monthly credit card payments reduced by up to 30 to 50%.

If your credit card accounts are already in collections and you don’t care about credit damage, then settlement is also an option. This allows you to pay back a portion of what you owe. Then the collector agrees to discharge the remaining balance. Each debt you settle creates a negative item on your credit report. It sticks around for seven years from the date of discharge.

Learn more about how to pay off credit card debt »

How to get out of student loan debt

Refinancing student loans works different than refinancing other types of loans. That’s because federal student loan interest rates are set by the government. So, your credit score is not a factor for qualification. If you want to refinance a student loan, you generally go through a private lender. Just be careful, because this converts your federal loans to private. Your debts will no longer be eligible for any federal relief options, including forgiveness.

If you have multiple federal loans to repay and low income, you generally need a federal repayment plan. Plans like income-based repayment tie monthly payments to your income level, so the payments are lower. This can also make you eligible for loan forgiveness, which we describe below.

As far as consolidation goes, there are two options. A Federal Direct Consolidation Loan allows you to combine loans from different federal programs, like Stafford or FFEL. This makes more of your debts eligible for other federal relief options. If you want traditional consolidation at a low interest rate, however, you generally must use a private student debt consolidation loan.

Finally, you have settlement. Student loan settlement is rare because these debts can’t even be easily discharged through bankruptcy. You basically must prove that your loans are causing extreme financial hardship. If you can show that you can’t reasonably be expected to repay private student loans, then you may qualify for settlement.

Learn more about how to pay off student loan debt »

How to get out of tax debt

In the world of back taxes, the only option you really have to pay off tax debt without additional credit damage is to set up a repayment plan. This is known as an Installment Agreement (IA). At the same time, you can also use penalty abatement to reduce penalties and interest charges already applied to your debt.

Tax debt settlement is rare, again because this type of debt can’t easily be discharged through bankruptcy. In some cases, however, the IRS may agree to a settlement offer if you can’t reasonably be expected to pay off everything you owe. They will review your finances and see how much they can expect to get back, then arrange your settlement accordingly.

How to get out of debt through forgiveness

Debt forgiveness really only applies to loans, specifically student loans. And it’s not as easy as you may be hoping it is. First, you must work in a public service profession, like teaching or nursing. The, you still must pay off a portion of your debt. In fact, you must make payments for 10 years before the remaining balances are forgiven without penalties. This is known as Public Service Loan Forgiveness.

Find the right tax debt relief option »

What about tax debt forgiveness?

Tax debt forgiveness is not really a thing. If you prove you don’t owe the IRS through Innocent Spouse relief, that’s about as close as you really get to forgiveness. But unless you can prove that you’re not liable, you generally must pay back at least a portion of what you owe.

How to get out of debt with no money through discharge

If you can’t prove a debt isn’t yours, you can’t pay it and forgiveness isn’t an option, you need discharge. Discharge is where the creditor or lender agrees to clear your remaining balance. You usually have to pay them something back first, such as through settlement described above. Even if you file for bankruptcy, the court may either set up a repayment plan (Chapter 13) or liquidate your assets (Chapter 7).

The less income you have available and the fewer assets to liquidate, the less money settlement takes. Discharge is all about showing that there is no “reasonable expectation for repayment.” Basically, you must show you lack the means to make payments on the debt.

How to get rid of other type of debts

How to get rid of your mortgage

If you can no longer afford your mortgage, call your lender to discuss options. They may offer forbearance, when they temporarily suspend or adjust your payment schedule until you get back on your feet. If you can’t save the home, then they may approve a short sale or offer cash for keys — where you effectively cash out of your mortgage.

Keep in mind that any solution that gets you out of paying your remaining mortgage balance can lead to a deficiency judgment. That means the lender reserves the right to sue you for the remaining balance owed. This is true even on an approved short sale. Just because the lender agrees to let you out of your mortgage, it doesn’t necessarily mean you’re off the hook.

How to get rid of your car loan

With a car loan, you generally need to refinance or see if the lender will let you out of the loan. Refinancing can help if you have a bad loan that resulted in negative equity. This is where you owe more than the car is actually worth. In this case, you refinance to get a better loan with payments you can afford.

If the lender agrees to let you out of the loan, you generally must return the vehicle in good working order. You basically sign the title of the car over to the lender, so they can sell it. Again, the lender reserves the right to come after you for the remaining balance with a deficiency judgement.

How to get out of collections from a cell phone or other service

If you have a cell phone bill, utility bill or out of pocket medical bill that goes to collections, the best way to get out of it is to settle with the original service provider. Don’t deal with the collector. Skip them and go back to the company that provided the service to set up a payment plan. They’re often willing to work with you so they can recoup at least some of what you owe.

Once you settle with the original service provider, you will no longer be on the hook for the collection account.

How to get out of court-ordered debt, such as child support

If you owe back child support, alimony or another court-ordered debt, you can consolidate it. You can get out of debt from the courts by taking out a personal loan. This will help you avoid additional court fines and the potential for jailtime. You can even roll this debt in with a credit card debt consolidation loan. You use part of the funds to pay off court fines and court-ordered payments.

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Originally published at helps people with credit card debt, tax debt, student loans debt, credit report errors, ID theft issues, bankruptcy & more!

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