I don’t have to tell you that time is money. Compound interest is proof of that. When you’re serious about getting out of debt, some gurus would have you go ‘like a gazelle’ and use a snowball or avalanche to get out of debt. While you live on beans and rice like no one else, it is ironically like all third world countries, interest is added to your debts. Experts won’t put a time limit, but you should. This is why.
The life goes fast. now is the time Financial goals need to be met, like buying a car or a house, or saving for retirement. The time it takes to get out of debt slows down your ability to reach other goals. The more money you spend to get out of debt, the slower this process is. What do you do when you are stressed and cornered? You do everything you can to avoid the devastation of facing potential bankruptcy because that would be the worst, right? keep reading
Choices are the cornerstone of the freedom we have in our country. It’s great news that you really do have options when it comes to getting out of debt. First, we will explore each option. Then we’ll look at the numbers using an example of what it would cost with each method. From there, you can make a better choice of the option that is right for you.
A debt avalanche (also known as a “debt stack”) targets debts with the highest interest rates first. A debt snowball plan, by contrast, prioritizes your smallest debt first regardless of the interest rate. Each time the smallest is removed, the next smallest is passed.
Alternatively, consolidation is a new loan that transfers all of the debt to the new loan. The average annual percentage rate (APR) on a consolidation loan is around 18.56%. To put that in perspective, the average range of interest rates charged on consolidation loans is generally between 8.31% and 28.81%. Settlement and settlement of debt for less than what is owed requires you to pay off part of the debt and then pay taxes on the canceled debt. The main problem with debt relief companies is the fact that they are unable to stop lawsuits and wreak havoc on your credit report due to late and missed payments.
You can follow the gurus and use a snowball or avalanche method and pay off your debts while losing weight on beans and rice. Other options include consolidation and negotiated settlements, paying less than you owe. Paying less than you owe comes with a canceled tax bill. Each method has its advantages and disadvantages and affects the availability of credit. Meanwhile, interest continues to rise, your credit score declines as you fall behind, and you may even be sued. What if you could find a way to pay off your debts with all these benefits in one? Let’s look at the numbers.
Let’s use the example of someone who has a total of $30,000.00 spread across two accounts and a student loan. Plus, you can set aside an additional $200 for debt payments after you make the minimum payments on all three accounts. 15000
- Credit Card A has a balance of $15,000, a minimum down payment of $285, and an interest rate of 22.25%.
- Credit Card B has a balance of $8,400, a minimum down payment of $150, and an interest rate of $18.85%.
- The student loan has a balance of $6,600, a monthly payment of $246, and an interest rate of 6.2%.
- Avalanche will set you back $881 per month for 5 years paying a total of $44,528
- Snowball will set you back $936 per month for 4 years paying a total of $44,898
- Consolidation will cost you $552 per month for 10 years paying a total of $66,240
- The deal will set you back $475 per month for 5 years paying a total of $28,500 including fees and taxes.
- Chapter 13 will cost you $500 per month for 5 years paying a total of $35,000 including fees
Now that I’ve laid out the numbers, you can see that the least expensive ways to eliminate debt fall between a negotiated debt settlement or a Chapter 13 bankruptcy payment plan. Although debt settlement seems cheaper than bankruptcy , if a lawsuit is filed, the program will usually remove that debt from your program and leave you hanging. Also, if you’re looking to preserve or improve your credit score, this program isn’t right for you because the debt relief agency won’t make a payment on that debt until you have enough money in reserves to negotiate a lump sum. settlement. So even though it seems to be the cheapest way, it may not be the best depending on your ruined credit score, tax consequences, and you may still end up dealing with debt on your own if you get sued.
A 5-year repayment plan can also be proposed in chapter 13 to pay less than you owe, based on the amount of assets you own and your income. Therefore, the total amount you owe could be even less. Some of the benefits of chapter 13 include zero interest and no income tax consequences on canceled debt. Even better is the improvement in credit score because bankruptcy protection means you can’t be sued while paying debts through bankruptcy and since you’re making payments, you should see your credit score improve while you’re in the process of paying off. After laying out the numbers, you can see that the least expensive ways to eliminate debt fall between a negotiated debt settlement or a Chapter 13 bankruptcy payment plan. Although debt settlement seems cheaper than bankruptcy, if a lawsuit is filed, the program will usually remove that debt from your program and leave you hanging. Also, if you’re looking to preserve or improve your credit score, this program isn’t right for you because the debt relief agency won’t make a payment on that debt until you have enough money in reserves to negotiate a lump sum. settlement. So even though it seems to be the cheapest way, it may not be the best depending on your ruined credit score, tax consequences, and you may still end up dealing with debt on your own if you get sued.
