Debt Solutions Overview: Compare Options, Avoid Credit Score Damage & Save

The best way to pay off credit card debt is as soon as possible. And you can save both time and money by using a credit card payoff calculator as well as a 0% balance transfer credit card, if you have good or excellent credit. You can check your latest credit score for free on WalletHub to find out.

The more credit card debt you owe and the more balances you have, the more complicated things can get. That's why you need a plan. Below, we'll explain the best ways to pay off credit card debt as quickly and inexpensively as possible, starting with WalletHub's preferred method.

How To Pay Off Credit Card Debt in 6 Easy Steps

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The current prime rate is 3.25% as of July 2020, according to the Federal Reserve. This is the lowest rate since 2008. The prime rate is determined by individual banks, and not the Federal Reserve. However, the prime rate is influenced by the federal funds rate, which is set by the Fed.

Debt stays on your credit report for 7 to 10 years after the account is closed. If the account was closed in good standing, the record of it will remain on your credit report for 10 years, but if the account was closed due to non-payment, it will fall off after 7 years. Debt from open accounts stays on your credit report indefinitely.

How Long Debt Stays On Your Credit Report

• Accounts closed in good standing: 10 years
• Accounts closed due to non-payment: 7 years
• Late payments, collections and charge-offs: 7 years
• Chapter 7 and 11 bankruptcy: 10 years
• Chapter 13 bankruptcy: 7 years
• Open accounts: Indefinitely

Regarding bankruptcy, even though you are no longer legally obligated to repay many of your debts, the record of a Chapter 7 or 11 bankruptcy stays on your credit report for 10 years, while Chapter 13 bankruptcies are typically reported for 7 years.

You can check your credit report and credit score as well as get personalized credit-improvement tips for free here at WalletHub.

Yes, you can get rid of debt without paying in rare cases, but it is very risky and will severely damage your credit score. You can get rid of debt without paying by waiting for your state's statute of limitations to end and hoping you don't get sued by creditors in the meantime. Just keep in mind that once the statute of limitations ends, your creditors can still try to collect money in other ways.

Alternatively, consider using a debt management program, opting for debt settlement or filing for bankruptcy. You will still have to repay at least some of your outstanding debt, but you could get some of it forgiven. You can find more details below.

Options for Getting Out of Debt Without Paying in Full

Debt Management

Debt management programs will negotiate with your creditors to create a new payment plan for you, and they will often negotiate for lower interest rates as well. Although you're still repaying the debt, you'll typically end up paying less than you would have if the interest rates and payments stayed the same. 

Debt Settlement

Debt settlement is a way for you to get out of debt by paying less than what you owe. The process involves negotiating a lump sum payment in exchange for the rest of your debt being forgiven, which may not be possible until you default. Defaulting will severely damage your credit.

Although debt settlement can be done by yourself, it is usually done by a third-party company on your behalf. They will charge a fee for their services.

Bankruptcy

Chapter 7 bankruptcy is what most people think of when they hear the term bankruptcy. It involves selling your non-exempt property and then having most of your debts discharged. Chapter 13 bankruptcy allows you to keep your property in exchange for at least partial repayment of your debt.

Bankruptcy can help get rid of debt, but you should be prepared for the consequences that follow. Bankruptcy will stay on your credit report for 7-10 years and will severely damage your credit score.

Preferred Ways to Get Rid of Debt

The best way to get rid of debt and save money in the process is to get a debt consolidation loan or a balance transfer credit card. These options let you combine high interest balances into one easy-to-manage monthly payment and can improve your credit score if you make the payments on time.

It's also a good idea to monitor your finances and budget accordingly. Analyzing what you spend and cutting back on certain expenses can leave you with extra money to help get out of debt. You can also sign up for WalletHub and follow personalized WalletScore recommendations that are based on factors such as your credit, spending, emergency preparedness and retirement planning.

You can get out of debt if you're broke by negotiating a debt management agreement or getting a loan from a friend or family member who won't expect repayment. You could also consider getting a debt consolidation loan or a balance transfer credit card, as long as you have an alternative form of income to list on the application. Alternative forms of income include things like Social Security or disability benefits, retirement funds, and child support or alimony payments.   

In addition, you'll need to adjust your budget. Cutting back on certain expenses could leave you with extra money that you can use to pay off your debt. You can also consider various government programs that cover expenses like food, energy bills, medical expenses and telephone services for people who are struggling to afford their living expenses. Below is a detailed list of several ways to get out of debt if you're broke.

Ways to Get Out of Debt If You're Broke

Debt Consolidation Loan

Most lenders let you use alternative forms of income on a debt consolidation loan application if you don't have a primary income from a job. Some examples of alternative forms of income include alimony, child support, disability benefits and unemployment benefits.

To read about the top-ranked offers, check out WalletHub's picks for the best debt consolidation loans. You can also estimate your potential rates with our free pre-qualification tool.

Balance Transfer Credit Card

You can use a balance transfer credit card to pay off your existing debts and consolidate them into one balance, assuming you're approved for a high enough credit limit. If the balance transfer credit card has a 0% introductory APR, you can pay down what you owe much faster and at much less of an expense.  You will need to provide a source of income when applying for a credit card, so consider all the ways that you receive money.

You can read about the top-ranked balance transfer credit card offers on WalletHub.

Debt Management Program

Debt management allows you to work with either the lender or a third-party company to negotiate a new payment plan. This plan can result in you getting a lower interest rate, a longer repayment period or fees waived.

Loan From a Friend or Family Member

A friend or family member won't require you to show proof of income to get a loan. However, you risk damaging your relationship if you don't repay what you borrow.

The Island Approach

The Island Approach is a way to use separate credit card accounts for different transactions. For example, you can use one account for everyday purchases that you'll pay in full each month and another account to manage a revolving balance. Using this technique will reduce the amount of interest that accrues, which helps you get out of debt sooner. It will also allow you to get the best rewards on everyday purchases and the best balance transfer deal.

Repay Your Most Expensive Balance First

It's smart to repay your most expensive balance first, since that balance would cost you the most in interest over time. You can do this by allocating most of your debt-repayment budget to this balance and paying at least the minimum amount due on your other balances with the rest of the budget. Once the balance with the highest interest rate is repaid, you can repeat this process until you're debt-free.

The Snowball Method

This method involves paying back your smallest balance first and then moving onto your larger balances. After you pay off your smallest balance, you can put whatever money you had set aside for that balance toward your next smallest balance. This cycle will repeat until all of your balances have been repaid.

The snowball method is easy to implement, and you may see results faster, but you incur more interest and ultimately take longer to completely pay off your debt compared to the Island Approach.

Debt Settlement Program

With debt settlement programs, you make monthly payments to the company that claims to be “helping you,” but they will often withhold payments from your creditors. This puts the company in a better negotiating position but causes you to default. You can save money by settling debt yourself, but you'll have to negotiate with each creditor by yourself, which could end up being a tedious process. Overall, debt settlement is extremely bad for your credit score, and a record of debt settlement will stay on your credit report for up to 7 years.

Adjust Your Budget

If you want to get out of debt, you'll have to adjust your monthly budget. If you organize your finances and look for ways to cut back on extra spending, it could free up some cash that you can put toward your debt.

You should also keep track of your WalletScore, which assesses your financial health based on factors like credit, spending, retirement planning and emergency preparedness. Following your personalized WalletScore recommendations will get you into better shape financially.

Use Government Programs You're Eligible For

There are several government assistance programs that can help out with energy bills, paying for food, phone bills and medical expenses. Examples include the Supplemental Nutrition Assistance Program (SNAP), the Children's Health Insurance Program (CHIP), the Low Income Home Energy Assistance Program (LIHEAP), the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), and Medicaid. It's worth looking into these programs to see which you might qualify for.

For more information, check out WalletHub's step-by-step guide on the best way to pay off debt.

You can avoid paying payday loans legally by giving your bank a stop-payment order before the payment is due. You can also contact the payday loan provider and your bank or credit union to revoke authorization for automatic withdrawals from your bank account.  

Keep in mind that revoking authorization from the payday lender does not cancel your debt, and the lender could pursue legal action or sell your debt to a debt collector if you stop making payments. Debt collectors report unpaid debt to the major credit bureaus, which could damage your credit score.

How to Avoid Paying Payday Loans Legally

1. Notify the payday lender: You can send a letter to the payday company to notify them that you're revoking their authorization to automatically withdraw money from your bank or credit union account.
2. Notify your bank or credit union: It's important to let your bank or credit union know that you've revoked authorization from the payday lender because some lenders may continue to withdraw funds from your account.
3. Issue a stop-payment order: Even without revoking authorization, you can still stop an automatic payment from being withdrawn from your account. You can do this by giving your bank or credit union a stop-payment order. A stop-payment order must be submitted at least three business days before the payment is scheduled, and banks may charge a fee for stop-payment orders.
4. Monitor your accounts: Lastly, you'll have to monitor your accounts to see if any unauthorized payments are made. You can dispute any unauthorized payments to get your money back, as long as you notify your bank or credit union in time.

Payday loans come with insanely high rates and fees that can leave you in a cycle of debt, so they should only be considered as a last resort. If you need to borrow money quickly but want to avoid the drawbacks of a payday loan, check out WalletHub's list of payday loan alternatives.

If you already have a payday loan that you're looking to get rid of, the best approach is to negotiate a debt settlement agreement with the lender. This may prevent credit score damage and a potential lawsuit, giving you valuable peace of mind.

You can avoid paying payday loans legally by giving your bank a stop-payment order before the payment is due. You can also contact the payday loan provider and your bank or credit union to revoke authorization for automatic withdrawals from your bank account.  

Keep in mind that revoking authorization from the payday lender does not cancel your debt, and the lender could pursue legal action or sell your debt to a debt collector if you stop making payments. Debt collectors report unpaid debt to the major credit bureaus, which could damage your credit score.

How to Avoid Paying Payday Loans Legally

1. Notify the payday lender: You can send a letter to the payday company to notify them that you're revoking their authorization to automatically withdraw money from your bank or credit union account.
2. Notify your bank or credit union: It's important to let your bank or credit union know that you've revoked authorization from the payday lender because some lenders may continue to withdraw funds from your account.
3. Issue a stop-payment order: Even without revoking authorization, you can still stop an automatic payment from being withdrawn from your account. You can do this by giving your bank or credit union a stop-payment order. A stop-payment order must be submitted at least three business days before the payment is scheduled, and banks may charge a fee for stop-payment orders.
4. Monitor your accounts: Lastly, you'll have to monitor your accounts to see if any unauthorized payments are made. You can dispute any unauthorized payments to get your money back, as long as you notify your bank or credit union in time.

Payday loans come with insanely high rates and fees that can leave you in a cycle of debt, so they should only be considered as a last resort. If you need to borrow money quickly but want to avoid the drawbacks of a payday loan, check out WalletHub's list of payday loan alternatives.

If you already have a payday loan that you're looking to get rid of, the best approach is to negotiate a debt settlement agreement with the lender. This may prevent credit score damage and a potential lawsuit, giving you valuable peace of mind.