What’s the worst thing you can do about debt? It’s to ignore it. The second worst thing is to make just the minimum payments month after month. Why are these true? Let’s take them one at a time.
Why ignoring debt is refusing to change the oil in your car like
When some people become heavily in debt they just choose to ignore it. This is a lot like refusing to change the oil in your car – because both will eventually jump up and bite you. If you choose to ignore your debts, you could eventually end up in court and have liens put on your house or some other valuable piece of property. In the case of not changing the oil in your car, it will eventually turn to sludge, your engine will seize up – and cost thousands of dollars to fix.
Bad idea #2 – making just your minimum payments
The second worst thing you can do about debt is make just the minimum required payments every month. This is especially with credit cards. In fact, that’s exactly what the credit card companies want you to do. The reason for this is simple. The credit card companies calculate their minimum monthly payments to be about the same as their monthly interest charges. If you don’t believe me, check out your next credit card statement. Compare the minimum monthly payment with your monthly interest charge. My guess is that they’ll be almost identical.
All interest, no balance
When you make just the minimum monthly payment, you are paying interest and doing nothing to really get out of debt. Let’s suppose you owe $10,000 at 18% and your minimum monthly payment is $200. If you were to make no more charges against the card, it would take you 46 years to pay it off and would cost $8,623 in interest charges. In short, you would basically never get out of debt.
The best advice
The best thing you can do about debt is get it organized and paid off as quickly as possible. How can you do this? There are at least four ways to get debt under control but only one way to get rid of it – at least short term. It’s to do a chapter 7 bankruptcy.
Before you file
Before you rush off to file for bankruptcy, sit down and make a list of your debts.. Be sure to divide them into two groups – secured debts and unsecured debts. If you find you have a lot more secured debts than unsecured debts, there’s no point in filing a Chapter 7 bankruptcy. Conversely if you have a lot more unsecured debts than secured debts, a chapter 7 bankruptcy could make sense.
What it can and can’t do
While a Chapter 7 bankruptcy will get rid of most of your secured debts such as credit card debts, it can do nothing about your secured debts. Plus, it will leave a black stain on your credit report that could last as long as 10 years. It will lower your credit score probably by as many as 200 points. You will have a hard time getting any kind of credit for at least two or three years after the bankruptcy. When you are able to get credit it will come with a very high interest rate. And since bankruptcies are a public record, it will stay with you literally forever.
Just say no
You’ve probably heard the phrase “just say no” in reference to drug use. It’s the same when it comes to a bankruptcy – just say no. There are too many more negatives than positives to a chapter 7 bankruptcy. A much better solution is to contract with a debt settlement company. When you do this, your debts can be reduced by thousands of dollars. You can become debt free in 24 to 48 months. And you won’t have the black stain of a bankruptcy in your record.