The Road Out of Debt: Bankruptcy and Other Solutions to Your Financial Problems

Chapter 7. The Way Out of Credit Card, Medical, and Student Loan Debt

You want 21 percent risk free? Pay off your credit cards.

—Andrew Tobias, American journalist

Different types of debt require different solutions and the strategies that you will adopt will result in different outcomes. Some debts are secured by collateral, such as the mortgage on your house and the auto loan to your car. These secured debts require you to pledge some security to back them up. If you stop paying secured debts, you will put at risk, and likely lose, the possessions that you have pledged to secure the debt. Other debts, such as child support and taxes, though not secured, can be enforced by federal or state governments. You can suffer harsh penalties, including incarceration, if you don't pay these debts. The third major type of debts is your ordinary, everyday debts that are backed solely by your promise to repay them. Unsecured debts include credit cards, medical bills, and student loans.

Up till now, we have discussed generally how to deal with all your debts. In the next few chapters, we provide specific advice on how to handle different types of debt. But just as every debt has its unique properties and characteristics, so do each of your creditors. You won't know what will work with your specific creditors until you try. This chapter provides the approaches you should use when you want to get out of your credit card, medical, personal, and other unsecured debt.

Note

The average credit card debt ...