Getting rid of loans could help you become debt free. However, not all loans are easy to eliminate. Secured loans such as mortgage loans and automobile loans are backed by collateral. You must pay these loans off in full or forfeit the house, car or other collateral. Even then you could still be held responsible for a portion of the loan after the property is sold at auction, according to CNN. Unsecured loans, which do not require collateral, are easier to eliminate.
Make separate lists of your secured loans and unsecured loans. Get rid of the secured loans by accelerating payments until the loan balances are paid in full. Or, for a secured loan such as a house or car, sell the property and use the proceeds to pay off the loan. Add additional cash, if necessary, to pay the full balance.
Gather billing statements for your unsecured loans. Total the balances and compare the number to your cash available in and checking, savings and retirement accounts. Prioritize the loans according to their interest rates. MSN Money recommends that you focus on the loans with the highest interest rates first because they are costing you the most money in monthly finance charges.
Pay off as many of the unsecured loans as possible using your available cash. Choose other options if your cash is limited and the amount of outstanding unsecured debt is extensive.
Contact your lenders to discuss getting rid of your unsecured loans through a process called debt settlement. This option allows you to pay off your unsecured loan for less than the full balance, but only if the account is seriously past due and the lender feels you are on the verge of default. SmartMoney reports that accounts must be at least three months behind to be considered for a settlement offer. According to SmartMoney, creditors will sometimes settle delinquent accounts for 20 to 75 percent of the balance.
File for bankruptcy to eliminate other unsecured loans. Unsecured loans can be completely eliminated in just months through Chapter 7 bankruptcy. However, many people will not qualify for Chapter 7 because of income limits that vary by state. Those who don't qualify can opt for Chapter 13, which requires a payment plan of three to five years. Unsecured loans not completely paid off during that period will be eliminated by the bankruptcy.