4 Most Common Ways To Get Rid Of Debt

Money isn’t sexy. The stock market, debt, investments, savings, spending. None of it is sexy.

Stressful? Sure. Necessary? Yes. Keeps you awake at night? Of course. Anxiety-inducing? Definitely.

Debt is probably as stressful as the stock market’s ups and downs. With debt comes the stress of wondering if you can make next month’s payment. It keeps you awake at night and there sometimes seems like there’s no way out. Then there’s the shame of debt and people placing blame on you for your situation. (As if we need reminding of mistakes we’ve made!) No one’s gonna blame you for the stock market downturn, but they’ll blame you for your debt.

But there is a way out. Four common ways, actually. None of them fun and none of them easy. Definitely none of them sexy. You can choose a combination of debt settlement, debt payoff strategy and consolidation or choose just one: bankruptcy. There’s always a way out, and only you can choose which is best for your situation.

Money should be straightforward and boring. Paying off debt is stressful, but finding a strategy to pay it off should be straightforward and boring. There are no magic formulas or strategies.

And before we get into the pros and cons of each method, know that debt is just a thing. It’s neutral. It’s neither right nor wrong. It has nothing to do with your worthiness as a person. We live in a culture that feeds uses psychological mind tricks to make us feel like we’re losing out if we don’t have the latest iPhone. Marketing is EVERYWHERE. It’s one of the tenets of capitalism. And if you grew up poor with conflicting messages about money and THINGS, it’s no wonder so many people carry debt.

Debt in 2025

Let’s talk about debt in 2025. With stagnating wages, tariffs causing job losses and people losing jobs, more and more of us are getting into debt. Maybe we’re still struggling with debt from the pandemic. And with Medicaid being slashed in the upcoming fiscal year, we can expect to see a rise in medical debt.

American owe more than $1 trillion in credit card debt and we’re at about the same rate as we were at least year. The good news is that more than 54% pay their credit cards off in full each month. According to Wallet Hub, most of debt is carried by Gen X. That’s because we’re in debt supporting our kids and our parents as well as ourselves.

Then there’s medical debt. The Consumer Financial Protection Bureau, or CFPB, tasked with protecting us from corporate entities that exploit consumers, lost a case in federal court. Remember a few years ago, when the CFPB (during the Biden Administration) created a rule to remove medical debt from consumer credit reports? Well, no more.

In July, a federal court blocked the CFPB’s rule that was created to protect consumers who have medical debt. Collection agencies and other entities will be allowed to once again put medical debt on credit reports.

1. The Only Time To Settle For Less

Settling a debt is like settling a lawsuit. The parties come to an agreement on a price, the debt is paid as agreed and everyone moves on.

Debt settlement can be as simple as the creditor (or collection agency working on behalf of the creditor) to offer a way for you to get rid of the debt and for them to get some money. They usually call you or send you a letter. Don’t agree to anything over the phone. If you answer a call, tell them to communicate in writing. This way you can study the offer and determine if it’s in your best interest.

Here’s an example of a debt that goes into settlement.

You owe $1000 for a past due cell phone bill. The debt goes to collections and after a time, with interest, the debt goes up to $1200. Either you reach out to collections and propose a settlement amount or they reach out to you. Let’s say you both agree that you’ll pay $800. They’ll agree to stop collecting on the debt and will report the debt as paid off on your credit reports. So you pay the $800.

NOTE: Even if you pay the settlement amount, the collections agency may still report that this was a settlement agreement. Anyone who sees your credit report will see that you didn’t pay the full amount of the debt, but you DID pay it off as agreed. The information will stay on your credit reports for seven years from the date they report the payment. Make sure that the correct information is reported on all three reports, that you paid this off in settlement.

And remember that you can always add a 100-word statement to the item explaining why you got behind.

2. Weather Forecast Payoff

Pay it off yourself with a strategy. The snowball and avalanche methods are the two most common ways of paying off debt. My ADHD brain needs motivation so I would use the snowball method. Want to save on interest? Use the avalanche method.

The cool thing that helps you pay debt off faster is that when you finish paying off one debt, you take the money you were paying and throw it at the next debt on your list. But you still make minimum payments on the other debts. The chart below explains this with examples.

NOTE: If you start off with one method, you can always switch to the other method. Think about what motivates you, saving money or watching the number of debts go down.

3. Loan Consolidation

Student Loans

When it comes to student loans, there are lots of programs (both private and public) that will put all your loans in one place so you make ONE payment. Consolidating might help save money on interest and for ADHD brains, making one payment is a lot better than making four or five different payments at different times of the month to five different websites. (OMG I’m getting stressed just typing that out.)

When consolidating student loans, read the fine print. Can you consolidate public and private loans together? Will the interest rate be higher? Is there a pre-payment penalty? Will you be able to refinance at any point? Does consolidating make you give up certain benefits or protections?

NOTE: Consolidating loans can potentially extend your payment period, since you’re putting all the loans together. This could result in more interest paid over the loan period. Use an online calculator to see what works best for your situation.

Consumer Debt

There are generally three ways to consolidate consumer debt: a personal loan, HELOC (Home Equity Line of Credit) and credit card transfers.

Personal Loan

What’s a personal loan? This type of loan can have different names, depending on where you look. My credit union calls it a Signature Loan. This loan charges 10.99% – 12.59% and the period is for up to 60 months. The interest rate is less than half of what many credit cards charge.

A personal loan doesn’t generally require collateral, but will require a credit check before the bank or credit union lends you the money. The lender will want to know what you’ll be using the loan for.

HELOCs

A HELOC is a line of credit that uses your home as collateral. My credit union currently charges 6.05% – 10.05% for a line of credit. (The interest rate is lower for a HELOC than for a personal loan.) With a HELOC, you can remodel, pay off debt or go on vacation. Obviously this decreases the equity in your home until you pay off the HELOC because a line of credit is a second mortgage.

Credit Card Transfers

This is when you apply for a credit card that offers a low introductory rate and you transfer the balance of the high-interest card to the new card. A few things to watch out for with the new card:

• Usually there are transfer fees, either a flat fee or a percentage of the transfer amount
• If you make a late payment, they may take away the introductory rate and throw you onto the regular rate
• The intro rate is for a limited time

Ojo With Debt Consolidation

In Spanish, ojo literally means “eye.” But we say “ojo” when we tell someone to be careful. So, ojo with debt consolidation.

Here’s an example of a situation to watch for.

Let’s say you have $25,000 in credit card debt on four different cards. You open a HELOC. You’re excited because you’re finally going to pay off $25,000 in credit card debt. Yay! You’re free! You have $0 credit card balances (cue dancing emoji).

Sit down. You’re not free. Yet.

You still have to pay off that HELOC. Because if you don’t, the lender can foreclose. Yes, you read that right. Even though the HELOC is second in line to the mortgage, the bank can also begin foreclosure proceedings.

Also, there are loan fees to pay. The lender will need to see how much the home is worth, how much equity there is and how much is owed on the mortgage. This is how they determine how much to loan you and of course, whether to extend a line of credit. Oh, and if you decide to sell your house before the HELOC is paid off, any balance will be paid out of the proceeds. Remember what I wrote above? A HELOC reduces your equity.

A lot of care and planning needs to be done before applying for a HELOC. This is why I’m not a fan. I’ve faced foreclosure and it’s a really bad thing to have to go through. You need to deal first with how you got into debt in the first place. You’ll need to face the traumas and behaviors that caused the spending.

The $25,000 Question

A line of credit or a personal loan won’t help you get debt under control until you face the issues that got you into debt in the first place. Those $0 balances on your consumer debt could return to their previous balance of $25,000. Now you have $50,000 in consumer debt (and that’s not including interest).

Find out what your spending triggers are. Track your spending. Close credit card accounts that aren’t worth keeping open (especially those with annual fees that don’t have any type of benefit). Practice mindful spending by tracking every dollar that goes out, so you can see what is going on in your mind when you spend.

4. Bankruptcy

There are two types of bankruptcy for private individuals, Chapter 7 and Chapter 13. Chapter 7 gets rid of all debt (with some exceptions) and Chapter 13 restructures your debt so you make one payment and a court-appointed trustee makes payments to your creditors.

I filed for Chapter 13 twice in order to stop foreclosure on my home. I had no debt other than past-due mortgage payments. After several years of trying to come to an arrangement with my mortgage servicer, and failing, I filed to save my home.

But bankruptcy isn’t guaranteed. Both my cases were dismissed because the trustee believed I wouldn’t be able to complete the program. Chapter 13 plans range anywhere from three to five years. And Chapter 7 wasn’t an option for me because I had a home.

If your Chapter 7 bankruptcy petition is accepted by the court, make sure you understand what will be included in the bankruptcy and what you still need to pay back (IRS, property taxes, student loans).

If you file Chapter 13 and the petition is accepted by the court, be sure to make your payments on time. Failing to make a payment will cause the court to dismiss your case. This means that you’ll be back to where you started in terms of having to pay the debt on your own and developing a plan.

Debt Is Not the End

For me, having debt is scary. Going through bankruptcy and facing foreclosure was one of the most stressful and frightening times of my life. When I started to rebuild my credit I did it slowly and carefully. I know myself. I know how my ADHD brain works. So I set up systems to control my impulses and to remember to pay my bills on time.

So far, it’s worked! In the more than five years since I’ve had credit cards, I’m proud of not being late once. I had credit cards from age 18 until about age 31. I don’t know if I ever made a payment on time. From 31 to 49, I didn’t have any debt other than my mortgage. I was afraid to trust myself with credit. And I felt a lot of shame.

It doesn’t have to take you as long as it took me to use credit cards in a way that aligns with your values. I’ve already done the crazy shit so you don’t have to! And if you’re looking for someone to help guide you, develop a plan to save and pay off debt at the same time, challenge negative mindsets and reach your goals, I invite you to sign up for coaching! Schedule a free 30-minute strategy call today!