Eliminating debt can be a daunting and stressful challenge, making it tempting to seek options that free you of the financial burden without having to pay off the debt.
Depending on the type of debt, there are ways to do this, such as Teacher Loan Forgiveness programs and Public Service Loan Forgiveness for those with higher education loans. Credit card debt can be tackled with debt settlement programs or even by filing for bankruptcy. Some of the options, however, come with drawbacks, including potentially being sued or being required to sell off assets.
Here are some of the ways you can get out of debt that don’t include paying it and why that doesn’t often work in your favor
How you can get out of debt without paying
Debt might feel homogeneous, but each type is different. Your options will depend on which type you’ve accrued. Before you stop paying, make sure you know the limitations and the long-term ramifications of doing so.
How to get out of student loan debt without paying
There are a few options for getting out of student loan payments. Your loan, job status and sometimes even the school you attended will play a role in determining your eligibility for these programs:
- Income-driven repayment plans: These types of repayment plans reduce your monthly payments to 10 to 20 percent of your income for the next 20 or 25 years (depending on the plan). After that, the remaining loan balance is forgiven. “Going this route can help you eventually get free of your debt, but it will take a long time to get there,” says debt attorney Leslie Tayne, founder of Tayne Law Group. “Plus, you may have to pay taxes on the forgiven amount. However, the tax implications are currently paused until 2025 due to the pandemic.”
- Public Service Loan Forgiveness: This program is available for those who work in the public sector, such as government employees and those who work for a nonprofit organization. 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,” says Tayne. “The good news? Any forgiven balance will not be considered taxable income.”
- Teacher Loan Forgiveness: Open to teachers who work five consecutive years at a low-income elementary or secondary school and to those who work at an educational service agency, you might qualify for forgiveness of up to $17,500 of your Direct Loans or Stafford Loans.
- Perkins Loan Cancellation: Teachers, firefighters, law enforcement officers and others are eligible for Perkins Loan cancellation or discharge. Cancellation can happen over the course of five years, while discharge could 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: You could get your loans discharged in the event of death, permanent disability or — very rarely — bankruptcy.
For most options, you will need to make qualifying, timely payments each month. However, even then, not everyone qualifies or receives forgiveness. For instance, less than 1 percent of Public Service Loan Forgiveness applicants were approved and considered eligible.
You can’t have a defaulted loan forgiven, but defaulted loans may qualify for discharge, depending on the loan and the program.
How to get out of credit card debt without paying
If you have more credit card debt than you can handle, there are a few steps you can take; however, you may want to consider the repercussions first. Here are some options:
- Stop paying your credit card bill: If you opt for this approach, the debt is turned over to a collection agency and your credit score will decline dramatically. But there’s 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. You could skip payments, but you might be liable for them later. “Technically, you can stop paying your credit card bills, but it isn’t advisable,” says Tayne. “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: Another route is debt settlement, which involves settling your debt with the current lender (or collection agency, if it’s reached that point) for less than what you owe. “Debt settlement is an agreement that you would make with your creditor where the creditor agrees to accept less than the amount owed to satisfy the debt. Amounts generally fall in the range of 50 to 80 percent of the balance,” says Katie Bossler, of GreenPath Financial Wellness. “You can negotiate your own settlement or hire a lawyer to negotiate on your behalf.”
How to get out of debt through bankruptcy
Bankruptcy should only be considered if you don’t have any other options. Filing for bankruptcy may sound like you’re starting over, but depending on the type of bankruptcy you pursue, you may still be on the hook for some of your outstanding debt:
- Chapter 7: In a Chapter 7 bankruptcy filing, some of your assets are sold to pay back debt, meaning you could lose your home and personal property. A few months after filing, your remaining debt will be discharged — although Chapter 7 typically won’t cover things like student loan debt or child support.
- Chapter 13: In a Chapter 13 filing, you get set up on a court-ordered repayment plan. Any remaining debt after a certain time has passed, like five years, might be discharged. This process means you’ll spend even longer paying off your debt, and you’ll also have a bankruptcy filing on your credit report.
Depending on the type of bankruptcy you file, a bankruptcy filing could stay on your credit report for up to 10 years, which is why it’s important to carefully weigh your options and your outstanding debt. Debt collectors can’t attempt to collect a debt that was discharged in bankruptcy, and they can’t continue collection activity while the bankruptcy case is pending — but the filing itself will have long-term effects on your financial health.
Why not paying debt doesn’t work
Walking away from debt without paying it off can have a variety of negative and long-lasting ramifications. Some of these include:
- Poor credit
- Difficulty borrowing money in the future
- Harassment from creditors and collection agencies
- Increased cost for borrowing money in the future
Your credit report is a vital part of your financial well-being. Defaults, collections and bankruptcies crush your credit score, which can impact your future in many ways.
“You may no longer be able to get favorable interest rates or favorable insurance premiums,” says Bossler. “It could affect employment, housing and more.”
Avoiding payment also means that creditors can sue you for unpaid bills. In some states, you could get your wages garnished or have your assets seized. Even if you aren’t making the payments directly, you’re still paying your outstanding debt.
Alternatives to bankruptcy
If you have the chance to avoid bankruptcy, you should take it. Here are some alternatives to consider:
- Supplement your income: Whatever you need to do to start paying off your debt, do it now. Ask for a raise at work or move to a higher-paying job, if you can. Get a side-hustle. Start to sell valuable things, like furniture or expensive jewelry, to cover the outstanding debt.
- Ask for assistance: Contact your lenders and creditors and ask about lowering your monthly payment, interest rate or both. For student loans, you might qualify for temporary relief with forbearance or deferment. For other types of debt, see what your lender or credit card issuer offers for hardship assistance. If you have the means, see if friends and family will help you.
- Take out a debt consolidation loan: If you have many different types of debt, look into consolidation options. Taking out a debt consolidation loan is a way to simplify your finances — putting all of your debt in one place — and potentially pay less interest in the long run.
- Get professional help: Reach out to a nonprofit credit counseling agency that can set up a debt management plan. You’ll pay the agency a set amount every month that goes toward each of your debts. The agency works to negotiate a lower bill or interest rate on your behalf and, in some cases, can get your debt canceled.
The bottom line
It can feel like it’ll take a lifetime to get out of a huge debt trap. You may skip payments, consider not paying at all or file for bankruptcy. While you might, in certain circumstances, get out of paying your outstanding debt, the likelihood is low. And more often than not, it’s harmful to your financial well-being to avoid paying your outstanding debt.