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Our first step
The first thing we did was sit down and make a list of all the options we could use to get out of debt. We counted a total of seven. However, four of them were variations on debt consolidation such as a debt consolidation loan, credit counseling, professional debt consolidation and consolidating all credit card debts onto one card with a lower interest rate. The alternatives we listed that did not include debt consolidation were budgeting, cutting a deal with our creditors, and filing for bankruptcy.
Debt consolidation calculator
There were no debt consolidation calculators available back then and I sure wish there had been as this represents a quick and easy way to determine how much debt consolidation could help. Fortunately, there are debt consolidation calculators available today. For example, Wells Fargo has one. The way it works is you first choose your goal – to pay off your debt faster or get a lower monthly payment. You then select the type of debt – credit card, retail credit card or other – and type in the APR, current balance and estimated monthly payment, which you can leave blank as Wells Fargo will fill it in for you using a minimum payment industry average.
To give an example of how this calculator works, I chose Pay Off My Debt Faster and then typed in information on four hypothetical credit cards. I said the first had an 18% interest rate and a balance of $3,600 while the second had a 20% interest and a balance of $4,500. I gave the third credit card an interest rate of 21% and a balance of $2,100 and the fourth an interest rate of 18% and a balance of just $800. When I clicked Calculate, the program reported that with a debt consolidation loan I could lower my monthly payment from the current $440 to $276.72, could become debt free in four years and would pay $2,280 in total interest.
The calculator also reported that if I paid an additional $76 a month, I could get out of debt a year faster.
Just two ways to eliminate debt
Of the eight ways I found to handle debt, only two of them will actually reduce it. The others – especially those that involve debt consolidation – are only ways to manage debt. For example, if you were to choose a debt consolidation loan to pay off $14,000 in debt, you'd still owe $14,000 – just to a different lender. Of course, you can totally eliminate credit card debt by filing for bankruptcy.
Why bankruptcy is a bad idea
If you're so heavily in debt that you just can't see any way out, filing for bankruptcy might seem like a very attractive option. However, before you file for a chapter 7 bankruptcy, it's important to know that it will not discharge all of your debts. It will get rid of many of your unsecured debts, such as credit card debts, but can’t eliminate student loan debts, child support or alimony or any taxes you owed. Plus, you may find it impossible to get a mortgage or auto loan for several years after your bankruptcy and it will stay on your credit record for 10 long years.
Let us tell you about debt settlement
The other and we think a better way to reduce your debt is through a program of debt settlement. Our trained and experienced debt counselors can negotiate with your creditors to have your debts reduced – probably by thousands of dollars. They can also help you create a payment plan that will get you debt free in 24 to 48 months. Call us today so that we can explain debt settlement and how it could help you.