How Do I Pay Off Debt With Bankruptcy
When youve reached your limits and have nowhere else to turn, bankruptcy can offer a fresh start. You should only use it as a last resort, however, because bankruptcy can devastate your credit.
Bankruptcy cant be encompassed in a few short steps, but the general process is:
- Step 1: Examine your debts, and determine your ability to repay them over time.
- Step 2: If you think your debts are insurmountable, and youve decided bankruptcy might be the right response, research bankruptcy attorneys in your area.
- Step 3:;When you find the right attorney, he or she will instruct you on what to do. Youll need to submit comprehensive documentation of your debts, credit cards, loans, bank accounts, and other financial products, along with information about your assets and personal property. And more!
- Step 4: The attorney will collect your information and file the bankruptcy with the proper authorities.
- Step 5: If filing a Chapter 13 bankruptcy, youll need to make monthly payments for a period of 35 years.
- Step 6: When the bankruptcy is discharged, the included debts will be written off by the creditors, and youll no longer be responsible for them. Depending on the type of bankruptcy, it could be discharged within 34 months of filing or 35 years .
There are two types of personal bankruptcy:
- Chapter 7, which often requires you to surrender some of your property
- Chapter 13, which allows you to keep your property
Q&A Video: Is There Anything Worse Than Bankruptcy?
If You Have Credit Card Debt You’re Not Alone Here Are The Best Ways To Pay Off Credit Card Debt So You Can Be On Your Way To A Debt
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If you have credit card debt, you’re not alone. In fact, about 61% of Americans have a credit card and cardholders carry an average balance of $6,194, according to Experian. While it can be worthwhile to have a card that gives you the opportunity to earn a lot of rewards, all of those savings are for nothing if you’re carrying a balance and paying high interest.
There are plenty of ways for you to pay off credit card debt, but not all are created equal. If you want to tackle your debt head on, you’ll need to consider interest rates, fees, how much you can afford to pay and more before settling on the best repayment method.
Below, CNBC Select reviews the best ways to pay off credit card debt so you can be on your way to a debt-free life.
Use A Credit Counseling Service
If youd like to enlist the help of a professional, a nonprofit credit counseling service may be able to help you take control of your debt. These organizations offer guidance and education. They can also arrange a debt management plan, in which you make one monthly payment through the credit counseling service that goes toward multiple debts. You might also benefit from lower rates or fee waivers.
Help from a professional credit counselor
Minimize damage to your credit score
Single monthly payment
Fees reduce cash flow toward your balances
Potential for predatory or exploitative agencies
Ready to get started? Researchers at The Balance have reviewed numerous services to identify some of the best credit counseling agencies to start with.;
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Sort Your Priorities And Drop Some Expenses
Okay, its time to get a little radical. Are you ready?
Look back at that budget. You trimmed it up. Now cut off some branches. It might hurt, but if you can take certain expenses out of your budget completely, thats the real money saver.
What extras can you live without in this season? Its not goodbyeits see you later.
Here are some common unnecessary budget lines you can delete : restaurants, entertainment, subscriptions you dont use regularly, cable, trips to the coffee shop. Be honest with yourself and your budgetwhat things can you live without while youre paying off that credit card debt?
You arent cutting all the fun. Just get creative with budget-friendly fun and rewards! Heythese sacrifices right now will make a huge difference for your future.
You Have Lots Of Debt A Very High Apr And No Savings
High-interest debt is costing you a bundle. Suppose you had a $2,000 credit card balance on a 15% APR card, and normally paid $40 a month. By the time its paid off, youll have paid $1,026 worth of credit card interest more than half the original balance!
Now suppose you raised the minimum payments:
At $75 a month: $412 total interestAt $100 a month: $291 total interestAt $150 a month: $187 total interestAt $200 a month: $138 total interest
In other words: By adding $35 to $160 a month to the $40 minimum youd been paying, you would save anywhere from $614 to $888 in interest!
Thats why in a case like this Harzog recommends focusing on repayment only for six months. Otherwise, she says, the debt is just going to get worse.
Bonus? If your financial goals include improving your credit, reducing your debt faster could help your credit score. By paying down debt, you reduce your “,” which is a major factor in your FICO score.
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Use The Debt Snowball Method
Once you use these other tips to take control of, free up, or make more money, its time to start using that money to pay off your credit card debt. Right away.
Use the debt snowball method and start paying off your credit cards smallest balance to largest. Okay, we know youre thinking all about those interest rates right now. But what you really need is a win. You need one of those credit cards gone. Quickly.
The debt snowball method is all about building your motivation and momentum by attacking one credit card debt at a timeand going after the one you can get out of your life soonest first. That quick win is super inspiring and key to getting out of debt.;
How Long Until Your Balance Is Paid Off
This credit card payoff calculator figures how long to get out of debt and how …show more instructions
When you find the plan that is right for you make sure to use the printable amortization schedule so that you have a permanent record to keep.
And if you’re ready to take the next step beyond just paying off credit card debt so you can start building wealth then check out this financial freedom course here.
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Make Money From Home Selling Baked Goods
Ive known quite a few people over the years who made money selling baked goods from home.; If you have a talent for baking or have some killer family recipes, this is a great one for you!
Baking sweet treats doesnt take a lot of money to get started, and if your concoctions are good, youll always have repeat customers!
Heres a detailed post about how to earn money selling baked goods for a profit:
How to Make Money Baking From Home- Money Making Idea #18
Next Balance More Savings And Remaining Debt
With your toxic debt under control, you can turn to building up greater cash reserves and retirement savings while working to pay off the rest of your debt.
If youre putting just enough into your 401 to get the match, you can add more. Work up to saving 15% of your gross income toward retirement.
Tip:;If your workplace doesnt offer a plan, you have other ways to save for retirement, such as an individual retirement account.
Student loans, credit cards with interest rates of 15% or lower, or auto loans, may be easier forms of debt to manage, but its still important to make a plan to repay what you owe.
You may be able to speed things up with some go-to tips for paying off your debt faster, including trimming expenses from your budget, taking on a side gig to drum up extra cash and exploring debt consolidation.
About the author:Sean Pyles is a debt writer at NerdWallet whose work has appeared in The New York Times, USA Today and elsewhere.Read more
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First Create An Emergency Fund
Though you may want to pay your debts as soon as possible, its important to prioritize emergency savingseven a small amountthat you can use in case an unexpected expense arises. A sudden ER visit or a spouse losing their job can throw a significant wrench into your financial plan. Without designated savings to pull from during such a crisis, you may feel the need to rely on high-interest credit cards or personal loans to cover sudden costs. However, doing so will only compound your debt and make the overall problem worse.
Its generally a good idea to have six months worth of expenses saved in an emergency fund, but this may not be realistic if you are also dealing with debt or otherwise struggling financially. If youre having difficulty saving at the recommended level, aim to save three months worth of expenses instead. Having at least some money set aside for emergencies is better than nothing, and you can always focus on building savings again once youve lowered your debt.
As you begin putting away money for an emergency fund, open a high-interest savings account so your money can grow when you pivot to focus on paying down your debt. While you continue to build your emergency fund, its also important to make at least the minimum payments on your debts to prevent late fees and potential damage to your credit scores.
Clever Ways To Pay Off Your Credit Card Faster
Do you feel stuck in a never-ending cycle of credit card debt? If every month you find yourself paying just the minimum balance due or carrying a high balance on your credit cards, you have whats known as revolving debt. Unfortunately, this kind of debt has a negative effect on your . However, it is possible to pay off credit card debt and end this cycle, once and for all.;
Heres a list of six clever ways to pay off your credit card faster:;
Get organized. Before you can come up with a plan for the best way to pay off debt, it helps to know exactly what youre dealing with financially. This means breaking out the paperwork, looking at your online accounts and writing some things down. Your goal is to create a list of all your debtsincluding bills, loans and credit cardswith their interest rates and balances due.;
Choose a method. Have only one credit card? Simply make the biggest payment you can afford to each month until your balance gets to zero. If you have multiple credit cards, start by paying the minimum monthly balance due for each. Then, choose a paying down method:;
Avalanche method: Put as much extra money as you can towards the debt with the highest interest rate and, once you pay it off, move on to the next one. It takes longer to see progress with this method, but youll pay your debt off more quickly and save money on interest.;
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Which Card To Pay Off Debt On First
If youve got debt on more than one credit card, some experts recommend the debt snowball method: concentrating on the one with the lowest balance and making the minimum payments on any other card. Once the low-balance card is paid off, you focus on the card with the next-lowest balance.
Theres also the debt avalanche method: concentrating on the card with the highest interest rate even it if has the lowest balance, because it saves you more overall. However, fans of the snowball method say that paying one card in full can motivate debtors to keep going and thats worth a little extra credit card interest paid.
Decide what works best for you. Maybe a quick victory would motivate you more to pay off debt or make a solid credit card payment than doing the math on the interest paid on a higher-APR card.
And if youre concerned about savings not building quickly enough? Remember that once youve paid off your outstanding balance, all the money youd have been paying in interest can go into your emergency fund.
How Much Do I Have In Emergency Savings
To determine how much you ultimately need in emergency savings, a general rule of thumb is to take your annual income and divide it by $10,000, Christensen said. The resulting figure is how many months of living expenses youll need in savings until you find your next job at equal pay.;
So, if you earn $30,000 per year, save up three months worth of living expenses. If you earn $60,000, you need six months worth.
If you find that you’re drawing on savings every monthinstead of contributing to itrevisit your budget, Gorelick suggested. Reduce your monthly contributions and focus on managing your expenses within your available income.
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Pay Off The Smallest Balance First
An alternative to the avalanche method is the snowball method of debt repayment: Paying off the smallest balance first can be a good way to boost your confidence and kick off debt repayment. Let’s say you have a $5,000 balance on one card and a $1,000 balance on another. If you start paying off the $5,000 balance first, it may seem like you’re barely making a dent in your overall $6,000 debt.
But if you pay off the $1,000 balance first, you’ll be able to see your progress sooner and feel more confident about your ability to pay off credit card debt.
Financial advisors usually don’t recommend the snowball method, because it can sometimes result in more interest charges compared to if you paid off high-interest debt first. But at the end of the day, the most important thing is to create a debt repayment plan you can stick to.
Pay More Than Once A Month
Pay your credit card bills more than the required once per month. This may make it easier to stay on track of how much you owe. Paying your credit card bill regularly may also lower your balance/utilization ratio. The credit utilization ratio is the percentage of your total available credit that is currently being used. The utilization ratio is one of the components used by credit reporting agencies to calculate your credit score.
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How Big Should Your Rainy Day Fund Be
The standard advice has been to have at least three months worth of household expenses saved, although some personal finance experts recommend six to 12 months worth.
A new joint research project, based on income and expenses from 70,000 low-income U.S. households, came up with a brand-new figure: $2,467. The study, from the University of Colorado and the Universidad Diego Portales in Chile, suggests that this recommended emergency fund size is enough to cover most issues facing an average household.
However, saving nearly $2,500 let alone up to a years worth of living expenses can seem impossible to people in their 20s and 30s, especially those with student loans. Some might feel defeated before they even start.
Thats why Delia Fernandez, a certified financial planner in Los Alamitos, California, suggests a $500 emergency fund as a compromise.
The general advice of three to six months expenses? Not a lot of young people can do that, she says.
You Need To Do Both But Heres How To Prioritize
Chip Stapleton is a Series 7 and Series 66 license holder, CFA Level 1 exam holder, and currently holds a Life, Accident, and Health License in Indiana. He has 8 years experience in finance, from financial planning and wealth management to corporate finance and FP&A.
Joyce Chan / The Balance
Its challenging to choose between saving for an emergency and paying off debt. If youre having a difficult time deciding where to allocate the funds in your budget or from a windfall, youre not alone. Household debt separate from housing costs skyrocketed to the highest level in 16 years in 2020, but at the same time, the household savings rate soared to levels not seen since 1975.
Is it better to pay off debt or save? Most people need to do both, but well explore factors to consider when deciding which is the most important.;;
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