Repayment Terms for Common Types of Debt

common types of debt

Debt can be incredibly useful when used to buy a house or a car. But it’s also something that can cause huge headaches for consumers—especially when it gets out of control. Unmanageable debt is just a way of life for many people who can’t keep up with its costs. In fact, a study from the National Foundation for Credit Counseling found that a quarter of adults aren’t paying bills on time.

One of the hardest aspects of debt is that it never seems to go away. Debt can follow you for a long time—but there are some things you can do to reduce or eliminate it.

How Long Does It Take to Pay Off Different Kinds of Debt?

It’s tough to say exactly how long it takes to pay off a certain type of debt since every situation is slightly different. Factors such as the total amount of debt and interest rate are going to play huge roles in how long it takes to eliminate a debt.

Here are some general guidelines on how long it typically takes someone to pay off a few of the most common types of debt :

  • Home Mortgage: A mortgage is typically considered to be one of the “good” forms of debt. First, you need to live somewhere, so using debt for a necessity isn’t a bad thing, assuming favorable terms. Furthermore, when you purchase a home, you’re typically doing so under the assumption that it will eventually increase in value—building your equity. Plus, mortgages typically offer some of the lowest interest rates, since they’re associated with such a valuable hard asset. It typically takes between 15 and 30 years to pay off a mortgage. Some experts say you should pay it off as soon as possible in order to avoid paying too much interest. However, with a low enough interest rate, you might be better off making the standard monthly payment and investing your money somewhere else where you can expect a return that’s greater than that interest.
  • Auto Loan: Car loans have been becoming a more cumbersome form of debt for consumers in recent years. About a decade ago, the 60-month car loan was standard. Now, 72-month loans are the most common; and even 84-month loans are starting to show up with greater frequency. What does this mean? Buyers are leveraging more in order to get that car, which then costs them much more interest over the life of the loan.
  • Student Loans: There’s a whole range a different kinds of student loans, which all come with their own rules for the repayment process. Generally, the loan balance determines how much time the holder has to repay the loan. It’s often prudent to pay off student loans faster, as they can at times carry weighty interest rates.
  • Credit Cards: Charge accounts are notorious for being one of the hardest forms of debt to get off your back. There are a few reasons for this. For starters, it’s easy to spend too much on a credit card. Then, once you’ve spent too much, it can be extremely difficult to pay it back. It can easily take a decade to pay off a maxed out credit card if you’re only making the minimum payment—and will often result in you paying more in interest than principal.

Does Some Debt Go Away After Seven Years?

You’ve probably heard that some debts go away after seven years of time. This isn’t true. Your debt doesn’t go away unless you pay it off, renegotiate it, or it’s forgiven somehow. The seven year term refers to how long many things are listed on your credit report—such as late payments or Chapter 13 bankruptcy.

What Are Your Options When You Can’t Pay Off Your Debt?

Fortunately, there are some options for people feeling like there’s no way for them to escape their debt. If you’ve already tried budgeting, boosting your income, and talking with a credit counselor, there are still some paths that can lead you out of debt.

  • Debt Settlement: This is a way consumers can negotiate with creditors in order to pay back part of what they owe. A lender wants to get its money back, or at least some of it. Sometimes, creditors will agree to accept a reduced payment and forgive the rest of the debt. Sometimes individuals can work directly with their lender to come up with a debt settlement plan, but many find it helpful to work with an experienced debt relief or debt negotiation company.
  • Debt Consolidation: A debt consolidation approach is often a good idea for individuals who have several loans from a variety of lenders. It can be overwhelming to keep up with all those payments, which can then spiral out of control. Debt consolidation typically involves taking out a loan to repay high-interest debts, then focusing on repaying that single loan back over time.
  • Settlement/Consolidation Combo: Some debt relief organizations like Freedom Debt Relief offer both settlement and consolidation plans to qualified enrollees. Their Consolidation Plus debt relief program is essentially a combination of a consolidation and settlement approach. They will negotiate your debt with your creditors and reach a settlement. Then, they pay off the lenders, and you reimburse Freedom Debt Relief through a debt consolidation loan. This can simplify your debt repayment, while getting those pesky creditors off your back.
  • Bankruptcy:  You shouldn’t consider bankruptcy unless you’ve exhausted your other options. Bankruptcy is a way for you to have many, or all, of your debts forgiven. But there are a couple huge catches. You’re going to have to give up all eligible assets to pay your creditors when you file for Chapter 7. Those who file for Chapter 13 typically get to keep some assets but must adhere to a repayment schedule for years. Filing for bankruptcy is also going to stay on your credit for seven years or longer.

What Is Zombie Debt?

Zombie debt is exactly what it sounds like: Debt that comes back from the dead to haunt you again. Maybe you had a debt in the past that was deemed uncollected by the lender. They probably just forgot about it, and you took a hit to your credit. But this doesn’t mean that debt is gone forever. A debt exists until you pay it back or renegotiate it in some other way. A lender can sell that debt to a different collector, who might try more aggressive tactics in order to get payment from you. Zombie debt is a true testament that debt can follow you indefinitely.

Debt can follow you for a very long time, so make sure you have a repayment or elimination plan in place.

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