Debts are unavoidable. But when you’ve become too submerged in it, it’s high time to take action and regain control of your financial life.
Purchasing a new house, a brand new vehicle, and furnishings for the new home seemed like a sound investment. Sending kids to college and getting health insurance are all excellent expenditures. Buying new clothes, accessories, and perhaps a sudden splurge on food and groceries still seemed to be within the range of acceptable spending. But when the spending becomes too much and even too lavish, it poses serious financial problems.
When you hit that financial snag, filing for Chapter 7 bankruptcy can help you get out of your debts fast. The Law Offices of Ronald E. Stadtmueller are the go-to experts for bankruptcy Chapter 7 in San Diego, California. The bankruptcy law firm specializes in Chapter 7 and 13 bankruptcy services, including debt reorganization, debt discharge, and other general bankruptcy services.
Warning signs of too much debt
How does a person know when they’re deep in debt? It’s difficult to pinpoint when your debt problems, such as credit card debts, have reached a critical point. For starters, regular household expenses are so ingrained into the spending habits that credit loan accumulation often becomes unnoticed until it becomes too big that it can no longer be ignored.
What warning signs should people be alert to stave off any impending financial crisis?
Savings run dry
Your savings account is empty. This is one clear-cut sign of people too deep in debt problems that they don’t have any existing savings or emergency funds. They’re practically relying on credit cards to pay for all their expenses. Whatever income they have acquired would pay credit card debts instead of building up their savings account.
Making minimum monthly payments only
A minimum monthly settlement keeps creditors in check but does not pull the debtor out of debt. This minimum monthly payment is the smallest amount accepted by the bank, credit card issuer, or a lending institution as part of a revolving credit payment agreement. Revolving credit includes credit cards, home equity lines of credit (HELOC), and personal lines of credit.
Although a minimum payment can help keep your account in good standing, it does not prevent your account from racking up interest charges. It may be a short-term solution but not a long-term debt remedy.
Dependence on cash advances
Making constant cash advances is an obvious sign that your debt is spinning out of control. Taking cash advances to pay off debts can be a temporary solution but certainly not a permanent fix to a debt problem. Cash advances often come with a hefty cash advance fee and high-interest rates. So, you might be able to pay your current debt, but then you end up gaining an immense debt.
Credit or loan denials
If several financial lending institutions have denied your loan application, you might want to look more closely at your credit score. A common reason a loan gets rejected is a low credit score because of a high debt-to-income ratio; your credit score falls below 580, which is typically viewed as a credit risk. Individuals are tagged as a credit risk because of the record of their other credit defaults, late loan repayments, or background of massive debts owed in different accounts.
Break-free from debts
Wiping out debts and getting a fresh financial restart is possible. Just thinking about putting a stop to those creditor harassing phone calls, ending the debt cycle, and finally sleeping peacefully at night will make all the endeavors towards emancipating yourself from debt worthwhile.
Ready to take back control of your life? Here are some ways to help you get out of debt fast.
Debt Snowball Method
The debt snowball method is where you start paying the smallest debts first, gaining momentum while moving towards paying off the largest debts. How it works is you first list down all of your debts, starting from the smallest to the largest amount. For instance, you have the following loans:
- $700 medical bill – monthly minimum $50
- $2,500 credit card – monthly minimum $63
- $7,000 car loan – monthly minimum $135
Start by settling the medical bill, the debt with the lowest amount. While you’re focused on wiping out the medical bill, don’t forget to continue paying the minimum monthly payments on the other loans. Put all extra money to pay off the entire $700 medical bill. Once this is fully paid, shift your focus to the next amount, which is the $2,500 credit card debt.
Use the freed-up $700 amount from the medical bill, and add it up to the credit card required monthly minimum of $63. So for the credit card, you’ll be paying this time the minimum $63 plus $700 (total of $763) till you finish off with the credit card debt.
And for the car loan, the payment will be the accumulated $763 ($700 from the medical bill and $63 minimum of the credit card), plus the monthly minimum of the car loan, which is $135 for a total monthly payment of $898 for the car loan.
The main advantage of the snowball method is that it helps accelerate paying your debt balances
as quickly as possible.
Debt Avalanche Method
The debt avalanche method works the same way as the snowball method, except that it starts from the debt with the highest interest rate and primarily focuses on interest rates. Using the debt avalanche method could help lessen the amount of time to get out of debt since you’re reducing and taking care of the interest rates first, preventing them from accumulating over time – as long as you’re being consistent with this payment method!
Side hustles & the 50/30/20 budgeting plan
Getting a good side hustle can help bring in that much-needed extra money to help pay your debts faster. For any windfalls, such as a stimulus check or a tax refund, add the amount immediately to pay off debts instead of putting them away in a savings account.
Follow the 50-30-20 budgeting plan. For any extra amount, 50% is allocated to essential needs, 20% for savings or debt repayment, and 30% for wants. You can increase the 20% to make it a more realistic figure. To be more effective, arrange automatic transfers or autopay for each budget allocated.
File for Chapter 7
When you’re too far behind on paying bills and no longer have any means to make monthly payments, it’s high time to file for a Chapter 7 bankruptcy. In Chapter 7, the court orders a temporary stay on all your existing debts. This will prevent creditors from collecting payments, foreclosing your home, repossessing property, garnishing your wages or sources of income, and even turning off your utilities.
This “liquidation” type of bankruptcy aims to wipe out unsecured debts such as credit cards, medical bills, utility bills, personal loans, and other debts that do not require collateral. This is done by selling off assets as repayment to the creditors. In California, there are laws allowing debtors to keep some assets that will enable them to continue their life after the debt has been settled.
Hang in there. Call the Debt Professionals.
Thinking about what steps to take, where to go, and what to do can be overwhelming, especially for people with no financial literacy background. This is where the debt experts and professionals step in and take over.
Ron Stadtmueller and his team of bankruptcy lawyers help provide their clients with fast debt relief and resolution – the surest and quickest way to get out of debt fast! With over 30 years of legal experience, the Law Offices of Ronald E. Stadtmueller aims to make the bankruptcy process as painless, smooth, and comfortable as possible for their clients.
Just hang in there. There’s always a way out, and it’s very much possible to bounce back and start fresh on your financial journey.