- 4 min read
- There are no quick solutions to get rid of debt.
- Learn to budget and focus on getting rid of unhealthy debt.
- The amount of time it takes to get rid of debt depends on the debt relief solution you choose.
Getting Rid of Debt: From Start to Finish
There is no "one way" to get rid of debt. In fact, there are so many debt help tips and suggestions that it can be confusing to find the best way to get rid of your debt. Bills.com knows that there is no one-size-fits-all debt relief solution. We offer you a wide range of information about the major problems about getting rid of debt.
Which solution is right for you depends on your level of debt, types of assets you own, your income level, and the amount of stress you are willing to take during the debt relief process.
Quick tip #1:
Use Bills.com Debt Coach to help you find the best debt relief strategy.
To help you get rid of your debt, we will look at the following topics:
- Healthy and Unhealthy debt
- Budget and Financial Review
- Debt Relief Solutions
Healthy and Unhealthy Debt
Do not make getting rid of debt your main goal, but focus on ways that you increase your financial and overall well-being. Some types of debts are healthy debts, because they help build your financial base.
Here are some examples of healthy debt:
- Student Loans: Studies show that getting a college education increases your chances of earning a higher income.
- Mortgage Loans: Buying a house is perhaps the biggest investment you will make. Going into debt, taking out a mortgage loan, is the only way most people can purchase a home.
- Medical Debt: Taking care of your health is a top priority item. Sometimes medical emergencies call for taking on debt.
Here are some examples of unhealthy debt:
- Credit Card Debt: Carrying large credit card debt is a drain on your monthly income, especially if you have high interest rates. Purchasing large ticket items on credit, via an installment plan can be a part of your budget, but do not max out your credit lines. . Also, avoid using high interest credit cards.
- Payday loans: These short term loans are traps. If not paid on time, they result in high fees and aggressive collection efforts.
- Unsecured personal loans: Unless you have very good credit and shop around carefully, the only personal loans you will find come with high interest rates that drain your cash flow.
Budget and Beat the Viscous Cycle of Debt
Making a budget is a good first step in getting rid of debt. Having a budget, in and by itself, does not solve your debt problems. Your budget, however, helps you answer these questions:
- How much money am I making?
- Is my cash flow positive or negative?
- How are my debt-to-income ratios?
- How much money am I saving and investing?
Getting rid of debt fast
Unfortunately, there is no method to get rid of debt quickly. All the ways to get rid of debt require hard work. You have most likely heard about or read some common tips about getting rid of debt, including: trimming expenses, increasing your income, paying off your debt more effectively. Follow any useful tip that you can.
It's Tough, but Keep a Budget
Bills.com has a budget guide, which provides you with the necessary information and tools to create and keep up your monthly budget.
However, as good as any one tip can be, the real solution to getting rid of debt lies in an in-depth analysis of your individual situation. Your situation is unique, including your amount of debt, credit score, net worth and asset allocation, and cash flow (income vs. expenses).
Cool Ways to Save
Use Bills.com Savings Machine and get great tips on ways to save money on everyday expenses.
Here are some general timeframes for getting rid of debt, based on different debt relief solutions:
- Bankruptcy: It is the quickest way to get rid of debt, but requires a real hardship to qualify. Bankruptcy harms your credit severely and its impact lasts for years.
- Debt Settlement: A successful debt settlement program takes about 2-4 years. Your creditors will have to be convinced that you have a genuine financial hardship and are not able to make regular payments on your debt.
- Credit Counseling and Debt Management: A Credit Counseling and Debt Management program takes up to 5 years to complete. This program allows you to get rid of the debt by paying back all the debt through a new payment plan with negotiated lower interest rates and fees.
- Do-It-Yourself options: Optimizing your credit card payments through strategies like avalanching or snowballing can greatly reduce your pay-off time.
- Cash-out Refinance Mortgage Loan: If you have equity in your house, then it is possible to retire all (or most) of your unsecured debt. By transferring your short-term debt into long-term debt you do not get rid of your debt faster; however, by extending the length of the pay-off term, you can create an affordable payment schedule. Remember not to build up your debt again.
Get a Debt Free Consultation
Contact one of Bills.com's pre-screened debt providers for a free, no-hassle debt relief quote.
Dealing with debt
If you are struggling with debt, you are not alone. According to the NY Federal Reserve total household debt as of Quarter Q2 2022 was $16.15 trillion. Student loan debt was $1.59 trillion and credit card debt was $0.89 trillion.
According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1.739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 10% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.
The amount of debt and debt in collections vary by state. For example, in Tennessee, 32% have any kind of debt in collections and the median debt in collections is $1892. Medical debt is common and 18% have that in collections. The median medical debt in collections is $888.
Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.