Is your current monthly cash flow either now, or in the near future, not enough to meet your monthly debt obligations while allowing for a set amount of savings taken from income each month? If not, you are currently, or soon could be, in a financial bind.
What can you do about it? What is the right debt solution?
Providing an answer to these two critical questions often requires a detailed individual analysis that is best delivered one on one. That said, here is a list of general questions and criteria to help you determine which path is most suited to your specific set of circumstances when starting on your journey to healthier finances.
Can you consistently pay 20% or more over your minimum payment toward your unsecured debt each and every month? If yes, a debt roll up program (sometimes referred to as debt snowball) can work for you.
Can I Consolidate My Credit Credit Card and Other Unsecured Debt Into One Debt Consolidation Loan?
The goal with debt consolidation is to take multiple higher interest credit card debts and consolidate them into one loan, with one payment, at a lower interest rate. In today’s tightened credit markets, it is increasingly difficult to get approved for a debt consolidation loan with major banks, especially when already carrying too much debt. If you have a credit score of 660 or higher, you may be able to qualify for a peer to peer loan through LendingClub. I will have more on LendingClub in an upcoming post.
Will a credit counseling service’s debt management plan work for you?
Can you consistently (without any skepticism) pay roughly 2 to 2.5% of your current credit card balances monthly? Can you commit to doing so for the next 5 years? If yes, look into credit counseling where you can lower your monthly payments through available interest rate reduction programs.
Here is a simple tool you can use to calculate what your debt payments are just making the minimum payments compared to the average lower payment with credit counseling. Compare the monthly payments and time it will take to be credit card debt free in the red, yellow, and green sections.
Will a Debt Settlement Plan Work For Me?
Can you identify sources of funds in order to raise approximately 50% of your current balances over the course of a set period of time? If so, debt settlement can work for you. If not, look into bankruptcy.
Typical sources of money you can seek in order to fund credit card debts you settle:
- monthly savings
- supplemental funds from home equity
- retirement accounts (IRA, 401k, etc.)
- insurance policies or annuities
- sale of unneeded vehicles or household items
- private assistance from friends and family
- side jobs
- tax refunds.
Should I File Bankruptcy in order to shed debts I cannot afford to keep current?
Can you qualify for chapter 7 given your states median income means test? If so, will chapter 7 force the sale of your home or other items of value that could have been sold and assisted in funding settlements in the prescribed debt settlement program time frame thereby allowing you to stave off filing for bankruptcy? Consult with an experienced local bankruptcy attorney and find out.
Bankruptcy is too often incorrectly considered a consumers last resort when dealing with problem debt. For many, it will prove to be the most obvious solution and option of first resort. Chapter 7 bankruptcy provides the most immediate relief and the quickest path to a financial fresh start.
You need to learn how each of these options fits in with your current financial ability and you’re future goals. Choosing the correct path at the beginning of this journey could mean the difference in reaching your destination, or remaining lost in a jungle of debt.
Anyone looking for expert feedback about the direction you can take to resolve debt, with the income and expenses you have to work with, can post in the comments below for feedback. You can also call me for a consult at 800-939-8357, and press option 2.