In the last issue we talked about paying off your debt with some methods that you could do on your own.  Let’s talk bout other options to payoff your debt, that you will need to consult a professional and make some tough choices before moving forward.

A Home Equity Line of Credit or Home Equity Loan: this is a mortgage against the equity in your home.  This is similar to debt consolidation except for using your home as collateral.  While this can be a much lower interest rate (and may be tax deductible), you are taking possibly unsecured debt and securing it with your home.  In addition, there may be closing costs, attorney fees, etc. involved with the mortgage process. And if you cannot make the monthly payment, there can be substantial consequences involved up to and including the loss of your home.

Debt Settlement sound like a great option to settle your debt for a lesser amount.  You would be paying a smaller agreed upon amount to pay off your debt.  While it sounds good, first do you have the cash to do this?  Second, there could be tax implications on the amount you save (the IRS can consider this taxable income).  In addition, this will be a negative factor on your credit report / score.

Bankruptcy, this is typically the last resort.  The is a legal / financial decision that you will need to discuss with your professionals (lawyer, tac preparer, etc.) before moving forward. There are two types of bankruptcy. One you will enter a payment plan to payoff your debt for a fixed period of time.  The other option, you will eliminate your debt entirely.  But you need to think about what is involved in the big picture – your will have legal fees that will need to be paid, your credit will most certainly be affected, and your will have difficulty receiving new credit at a reasonable interest rate for a period of time.  You will be able to get credit but at a much higher interest rate initially. Until your credit is reestablished.

One tool that I find useful is a financial calculator and BankRate.com is one of my favorite websites that offer a variety of calculators to help you make a decision that is right for you. https://www.bankrate.com/calculators/index-of-credit-card-calculators.aspx

Now that you have several options, make the choice that is right for you and your situation.  Talk to your professionals to get their option.  Then consider the benefits and costs involved.  These are not easy choices, but one that you need to make if you have substantial debt that you want to payoff once and for all.

Now if you are someone who has accumulated debt in 2020 (or previously), lets talk about ways to payoff your debt.  You have heard the ads on the radio and see the commercials on TV, but are they legit? Maybe, but do you want to try and find out you have been scammed?

Here are some of the ways that you can payoff your debt by yourself:

There is the snowball way:  Here is an example:  you have a $500 medical bill, a $2,000 credit card balance and a $10,000 car loan.  You would make the minimum payments to the credit card balance and the monthly payment to the car loan, while paying as much as you can to the medical debt.  Once the medical debt is paid off, you would start to pay off the credit card debt.  You payoff your debt by paying the smallest balance first and moving to the next smallest debt and so on.

The avalanche way: In this scenario you will pay the minimum payments to all your debt except the one with the largest balance.  Here is an example:  you have a $7,500 credit card balance on one card, $9,000 on another and $1,000 balance on a personal loan.  With this method, you would pay the minimum amount due each month on the $1,000 loan and the $7,500 credit card.  You would pay as much as you can (more than the minimum due) on the $9,000 credit card to pay this off faster.  Once this is paid off, you would move to the next largest balance and so on.

Debt consolidation is another option:  You would apply for an unsecured loan and consolidate all your debt into one loan and have one monthly payment to deal with.  Depending on what type of debt you are consolidating, you may have a lower interest rate. Typically, this would be lower than credit card rates, but may be higher than student loan debt.   You would need to compare terms and costs to see if this method is right for you.

A Balance Transfer can be an option:  With either your current credit card or opening a new one, you can transfer your debt to this credit card with zero percent interest for a fixed term.  A few cautionary notes: look at what fees might be involved for your situation.  Also, if you chose this option on a credit card that you have a balance on, your payments will be applied to the highest interest balance first.  Meaning you are not paying down the zero percent balance until the higher interest rate balance is paid.  This might take longer than the zero percent offer is good for.  If you do this, plan your payments wisely.  Take the balance and divide it by the number of payments during the zero payment term.  This is the amount you will be nee to be able to pay every month to pay this balance off.  If you fail to payoff the balance during the zero interest period, you will owe the remining balance with the new interest rate back from the date of the transfer.

Next issue, we will discuss other options that are available, that you will need to think about before moving forward.  Remember that debt is your financial enemy, so make a plan to tackle your debt now rather than later.

You will need to check with the appropriate professionals to discuss the pluses and minuses of each option before you make a choice.