Types of debt and 5 steps to follow when getting rid of debt

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Even though incomes have gradually increased over the years, there have been significant increases in the cost of essential services and goods surpassing income growth, as such, encouraging most people to overspend living outside their means. Many individuals have relied on credit cards and other loans to pay for inevitabilities like medical bills, housing costs, and food that their incomes cannot cover, plunging them into debt. Similar to many Americans, we also had consumer debt and mid of this year, my husband and I decided enough was enough, it was time to seriously consider getting rid of ours, mostly credit card and medical bill debt.-“The rich rules over the poor, And the borrower becomes the lender’s slave.”

What is debt?

Debt is something usually money that is owed or due. I like the way Wikipedia puts it “Debt is a deferred payment or series of payments, that is owed in the future, which is what differentiates it from an immediate purchase”. One party, the debtor or borrower owes it to another party, the creditor or lender.

Types of debts

Debt can be incurred through various routes; it could be acquired through one’s businesses, or present in the form of a non-transactional debt such as traffic tickets or the consumer debt we inherit from our personal loans. There are different types of debt and their classifications are usually based on analysis of loan requirements and their payment method.

  • Revolving debt enables the consumer to borrow an amount up to a maximum limit on a recurring basis. This type of debt usually has both a variable interest rate and repayment period and so even though there is no set time to repay, interest rates can change and increase.  Examples are a line of credit and credit card.
  • Non-Revolving debt is an agreement where the consumer receives a loan with a fixed payment term and fixed interest rates that do not change. Unlike revolving debt, this can be used just once. An example is a mortgage.
  • Secure debt as the name implies is a loan that can only be obtained with a collateral as a form of security or a guarantee assuring the lender. An example is an auto loan
  •  Unsecured debt is a loan that does not require collateral from the consumer. Because of the risk to the lender, these usually have high interest rates. Credit Card is an example.
  • Deductible Debt: this loan is acquired by consumers to acquire an investment or an appreciable asset that can produce income and therefore may have tax benefits.
  • Non-deductible debt: a loan that is not used to purchase an appreciating asset or new skill, this is usually a personal loan and you can not claim any tax deductions.

Why should I pay my debt?

Being debt free increases your financial security and gives you the peace of mind of not worrying too much about money, as it puts you back on track towards achieving the financial freedom you desire.

It builds your confidence and makes you happy.  According to a research released by Northwestern Mutual, financial security emerged as the most critical attribute of a positive outlook on life and an overwhelming 9 in 10 Americans (87%) agreed that nothing made them happier or more confident than feeling like their finances were in order.

It reduces anxiety and eliminates stress. The mere thought of owing and the daunting task of paying one’s debt can be a source of extreme stress and anxiety and that can be very unhealthy both mentally and physically. Therefore paying your debt could significantly improve your quality of life.

Getting rid of your debt improves your cash flow because whatever amount you were putting down towards the debt payment is freed up and can become more spending money and/or savings. You can then have the opportunity to enjoy your money on things you love.


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1. Choose a debt repayment options

This fundamental step of having to choose a repayment option when paying your debt cannot be overemphasized. Because we are all familiar with the DIY option of hatching out our own plan, paying off debt by monthly installments while managing the entire process yourself, we tend to overlook this vital step. Sometimes, however, due to the enormity of debt or how deeply inundated one may be in debt, insufficient income, expenses, and credit scores, it may be necessary to seek help and consider other options of debt relief like taking a Credit Counseling Program, seeking Debt Consolidation, Debt Settlement or even File for Bankruptcy. Each option may come with consequences as such you may want to do due diligence, weigh the pros and cons before making a choice.

2. Make a plan.

While paying off debt can be overwhelming and intimidating, it is crucial to have a plan. In a survey conducted by Comet, it was established that having a plan is usually the first step in paying off debt. The survey showed that compared to respondents who did not have a plan to pay off their debt, the overall quality of life for those who did was higher across all categories studied including ambition and optimism for the future. When planning, it is essential to make a comprehensive list of your debts, stating the amounts owed, the interests, minimum payments and due dates beside them.

3. Draw a budget

Make a budget and stick to it.  A budget is mainly an estimation of one’s revenue or income and expenses. Budgeting will help you track and take control of your spending. It encourages prioritizing and what better time to prioritize than when trying to pay your debt.

4. Set realistic goals

Set realistic goals and timelines.  Achieving your set goals may require extra discipline and focus. Track your progress and celebrate milestones along the way that way, you will be motivated and encouraged to forge ahead.

5. How to eliminate debt

You need not be in denial that you owe, of course, no one wants to be in debt because it sucks. However, at this point, you need to confront the reality, come to terms with the fact that you are in debt and just own it.

Negotiating with your creditor is an option you can consider. What you can do is to call and ask if your interest rates can be lowered. With lowered rates, your debt can be paid within a shorter period.

Live within your means and look for opportunities to cut down on your spending, your budget should help you do this. Some financial advisors encourage that you stop using the credit card altogether, break it up or cut it up to discourage overspending. From my experience, I will say there will be no extravagant lifestyle to support if you are living within your means and as such, there will be no need to even use your credit card. This will prevent you from piling on more debt.

Find a way of earning some extra income on the side just to increase your cash flow and cushion you a bit as you pump money into paying your debt. It could be a second job, a part-time job or a side hustle.

Begin paying off the debt by following through with your plan. Do not be lured into paying just the minimum balance or else you could eventually end up paying so much more than you initially borrowed and in a much more extended period due to huge interests on debt. Choose a strategy for paying off the debt and resolve to pay higher than the minimum balance. Experts have suggested a few useful strategies such as the Avalanche (debt with the highest interest first) and Snowball (smallest debt first) debt approaches when tackling debt. Pay the decided amount consistently till you completely eliminate your debt.

6 Financially prudent habits to save money and reduce expenses.


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