Debt is easy to get into and hard to get out of — especially for younger Americans. Knowing a few key options can help anyone resolve debt faster, whether you are new to debt or not.
The saying that debt is easy to get into and hard to get out of hits home for younger Americans. At the end of 2018, 18- to 29-year-olds carried over $1 trillion in debt, according to the Federal Reserve. That’s the highest level since 2007.
“Understanding your options and making a plan is imperative,” says Billy Hensley, CEO of the National Endowment for Financial Education. “Anyone doing that is going in the right direction.” Knowing a few key points can help anyone resolve debt faster — that includes people who are new to debt and people who are not.
1 Cut Your Interest Rate
A high-interest credit card or loan is costly. But you may be able to pay less interest and pay off debt faster with these tools:
Balance transfer cards. Roll the balance of your existing cards onto a new one offering a promotional 0% interest rate. With your entire payment going to the debt, not interest, you’ll pay it off faster and save money. Two caveats: pay it off within the promotional period, and you’ll need good or excellent credit to qualify.
Consolidation loan. You can consolidate multiple debts into a single payment with a personal loan. You might try this if your card balances are too much for a balance transfer card. This also requires good to excellent credit.
Debt management plan. If you’re having trouble paying your minimums, a debt management plan from a nonprofit credit counseling agency can cut your interest rates. It can also put you on a repayment plan.
“Debt consolidation or balance transfer makes sense when monthly payback, interest and payment terms are less than your current payments,” Hensley says.
Weigh the pros and cons. Hensley cautions that transferring debt can tempt you to take on more debt. “The question is, will you be strong enough not to use that original credit card again? Can you avoid using it to make ends meet or to fill a desire?”
2 Make Student Loans More Affordable
If you’re struggling to handle monthly payments, consider these options:
Federal loans. You have several repayment options if the standard plan isn’t affordable. With the income-driven plan, your payment will generally be around 10% of your discretionary income.
Private loans. Call your lender about repayment options. You may also be able to refinance student loans at a lower interest rate, though you’ll need good credit to qualify.
Before you miss a payment you can’t afford, look into ways to manage your student loans.
3 Question Medical Bills
Medical bills can be costly, complicated and confusing if there isn’t a clear path to resolve them. But you have a few options to pay medical bills. First, make sure any insurance coverage has been properly applied. You should receive what’s called an “explanation of benefits” letter from your insurer stating how much it covered. Compare that with your bill to check that charges are accurate.
Next, figure out how you’re going to pay what you owe. For bills you can’t cover in one payment, ask the service provider to establish a payment plan. For large bills, such as from a hospital stay, tap the help of a medical bill advocate. These professionals can spot errors in bills and negotiate the total owed. Medical bills can be malleable — don’t take them at face value.
4 Find Out Your Rights on Old Debt
All debts have a “statute of limitations” after which you can no longer be legally sued for payment. But you still owe the debt — and debt collectors will likely remind you of that. Debts in collections are often sold and resold, which means a collection agency could demand payment for long-forgotten bills.
Act fast if you’re being pursued for an old bill, says Cara O’Neill, legal editor at Nolo, the do-it-yourself legal advice publisher. “Find out your state’s statute of limitations period,” she says. Also learn whether your state requires the debt collector to disclose that expiration, and check what penalties a creditor could face for failing to do so.
If a debt is past its statute of limitations, paying even one dollar can reset that clock. That can leave you vulnerable to being sued for payment. Check out your consumer rights under the Fair Debt Collection Practices Act and your own state’s regulations before engaging with debt collectors. If the creditor violates your consumer rights or state regulations, contact your state’s consumer protection agency. You can also try tapping free legal aid from your local court.
This article was written by NerdWallet and was originally published by The Associated Press. The article There’s More Than One Way to Slay a Debt originally appeared on NerdWallet.
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Frequently Asked Questions
How can I lower the interest rate on my debt?
You may be able to pay less interest and pay off debt faster using a balance transfer card with a promotional 0% interest rate, a consolidation loan that combines multiple debts into one personal-loan payment, or a debt management plan from a nonprofit credit counseling agency. Balance transfer cards and consolidation loans require good to excellent credit, and a balance transfer should be paid off within the promotional period.
What options do I have to make student loans more affordable?
For federal student loans, you have several repayment options if the standard plan isn't affordable; under an income-driven plan, your payment is generally around 10% of your discretionary income. For private loans, call your lender about repayment options, and consider refinancing at a lower interest rate, though you'll need good credit to qualify. Look into these before you miss a payment you can't afford.
How should I handle medical bills I can't pay?
First, make sure any insurance coverage has been properly applied by comparing your explanation of benefits letter with your bill to confirm charges are accurate. Then figure out how to pay what you owe. For bills you can't cover at once, ask the provider for a payment plan. For large bills, such as a hospital stay, tap a medical bill advocate who can spot errors and negotiate the total owed.
What is a statute of limitations on debt?
All debts have a statute of limitations, a period after which you can no longer be legally sued for payment. You still owe the debt, and collectors may remind you of it, especially since debts in collections are often sold and resold. Find out your state's statute of limitations period and whether collectors must disclose that expiration before you engage with them.
Can paying on an old debt restart the clock?
Yes. If a debt is past its statute of limitations, paying even one dollar can reset that clock, leaving you vulnerable to being sued for payment. Before engaging with debt collectors, check your rights under the Fair Debt Collection Practices Act and your state's regulations. If a creditor violates those rights, contact your state's consumer protection agency or seek free legal aid from your local court.
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Debt is easy to get into and hard to get out of — especially for younger Americans.
The saying that debt is easy to get into and hard to get out of hits home for younger Americans.
“Understanding your options and making a plan is imperative,” says Billy Hensley, CEO of the National Endowment for Financial Education.
A high-interest credit card or loan is costly.
Balance transfer cards.
Consolidation loan.
Debt management plan.
Weigh the pros and cons.
If you’re struggling to handle monthly payments, consider these options.
Federal loans.
Private loans.
Before you miss a payment you can’t afford, look into ways to manage your student loans.
Medical bills can be costly, complicated and confusing if there isn’t a clear path to resolve them.
Next, figure out how you’re going to pay what you owe.
All debts have a “ statute of limitations ” after which you can no longer be legally sued for payment.
Act fast if you’re being pursued for an old bill, says Cara O’Neill, legal editor at Nolo, the do-it-yourself legal advice publisher.
If a debt is past its statute of limitations, paying even one dollar can reset that clock.
This article was written by NerdWallet and was originally published by The Associated Press.
You may be able to pay less interest and pay off debt faster using a balance transfer card with a promotional 0% interest rate.
For federal student loans, you have several repayment options if the standard plan isn't affordable; under an income-driven plan, your payment is generally around 10% of your discretionary income.
