You already know that time equals money. The concept of compound interest exemplifies this. Some financial experts recommend taking a ‘gazelle-like’ approach to debt repayment by creating a debt snowball or avalanche. While you and every other third-world country subsist on beans and rice, interest is charged to your debts. You should set a deadline even if the experts don’t. This is why.
Life is fleeting, right on time. Paying off debt, starting a family, and retirement savings require money. The longer it takes to pay off debt, the less time you devote to achieving other objectives. The time it takes to get out of debt increases proportionately to the amount spent. How do you deal with pressure and a tight spot? You’re doing everything you can to prevent the financial ruin of declaring bankruptcy. Continue reading!
Freedom in this country is built on the foundation of options. Good news: you don’t have to choose between eating and paying your bills. We’ll look at all of the possibilities first. Then, we’ll compare the costs by analyzing a hypothetical scenario for each approach. You’ll be in a much stronger position to pick the best course of action from that point on.
Debt avalanches (“debt stacking”) prioritize those borrowers who owe the most money. In contrast, if you follow a debt snowball strategy, you’ll pay off your lowest debts first, regardless of how much interest they accrue. The smallest is permanently eliminated first, and then the next smallest.
Consolidation, however, entails taking out a new loan to pay off existing debts. Consolidation loans typically have an annual percentage rate (APR) of roughly 18.56%. That rate is significantly higher than the average APR for consolidation loans, which is between 8.31% and 28.81%. When you settle debts by paying less than what is owed, you must first make a partial payment on the debt and then pay taxes on the amount that was forgiven. The major drawback of using a debt relief company is the destruction it may wreak on your credit score due to missing and late payments.
Follow the advice of the gurus and pay off your bills using the snowball or avalanche method while you trim down on beans and rice. Consolidation and negotiated settlements, in which you pay less than you owe, are two more alternatives. There will be a tax bill for the difference if you spend less than you owe. Each approach has benefits and drawbacks, and they all impact access to financing. Meanwhile, the interest keeps piling on, your credit rating worsens as you go farther behind, and you risk being sued. Imagine you found a way to repay your debts while reaping these rewards. Let’s take a gander at the stats.
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Let’s utilize the hypothetical situation of someone with $30,000 in three different places (two savings accounts and a student loan). After completing the minimum payments on all three versions, you can add $200 toward debt repayment. 15000
The APR for a $15,000 amount on Credit Card A is 22.25 percent, and the required minimum monthly payment is $285.
The $8,400 amount on Credit Card B will be paid off in monthly installments of $150 at an annual interest rate of 18.85%.
The interest rate on the student loan is 6.2%, the debt is $6,600, and the monthly payment is $246.
The price of Avalanche is $44,528, broken down as $881 each month for five years.
Snowball is $936 per month for four years, or $44,898.
The overall consolidation cost is $66,240, which is $552 monthly for ten years.
The overall cost of the settlement, including all fees and taxes, will be $28,500 over five years, or $475 per month.
The overall cost of filing for Chapter 13 bankruptcy is $35,000, which breaks down to $500 monthly for five years.
Now that I’ve laid out the figures, it’s clear that a negotiated debt settlement or a Chapter 13 bankruptcy case payment plan is the most cost-effective option to get rid of debt. Debt settlement may seem preferable to bankruptcy at first glance, but once a lawsuit is filed, the settlement company often drops you and your debt. Because the debt relief firm won’t pay until you have enough savings to negotiate a lump sum settlement, this program is also not ideal if you want to maintain or enhance your credit score. In light of the potential damage to your credit score, tax implications, and the likelihood that you will be left to handle your debts on your own if you are ever sued, this option may not be the best, despite its apparent low cost.
You may be able to submit a Chapter 13 repayment plan that spreads your debt payments out over five years but still leaves you owing money. That means your potential obligation may be significantly lower. Zero interest and no income tax on discharged debt are two of Chapter 13’s many advantages. Moreover, since you won’t be able to be sued while you’re in the process of repaying your debts through bankruptcy, your credit score should increase as you make your payments. Now that I’ve laid out the figures, it’s clear that a negotiated debt settlement or a Chapter 13 bankruptcy case payment plan is the most cost-effective option to get rid of debt. Debt settlement may seem preferable to bankruptcy at first glance, but once a lawsuit is filed, the settlement company often drops you and your debt. Because the debt relief firm won’t pay until you have enough savings to negotiate a lump sum settlement, this program is also not ideal if you want to maintain or enhance your credit score. In light of the potential damage to your credit score, tax implications, and the likelihood that you will be left to handle your debts on your own if you are ever sued, this option may not be the best, despite its apparent low cost.
A Biography of Christine A. Kingston
Bankruptcy and consumer protection attorney at Surf City Lawyers help people who have tax debt, student loan debt, credit card debt, medical bill debt, legal debt, are behind on their mortgage payments, or have automobile loans they can’t afford to get out from under. We put a halt to foreclosures and salary garnishments. Firm clients have used bankruptcy to discharge $1.5 million in student loan debt and decrease the principal on their mortgages. The firm’s attorneys are committed to defending their clients’ rights against abusive debt collectors and assisting them in gaining financial independence.
For a free consultation, please get in touch with us today at. Call (714) 533-3210 or go to their website.
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