Tens of millions of people in Virginia and around the country are struggling with overwhelming debt. Many Americans begin taking on debt as college students and continue to borrow throughout their lives, and making the monthly payments on their loans and credit card bills often leaves them financially unprepared for retirement. Escaping the debt trap is especially difficult when individuals have significant credit card balances as it can take decades to pay them off if only minimum payments are made.
One of the most popular debt reduction strategies is known as snowballing. This is a straightforward approach that involves paying off debts based on their monthly payments. The debt with the lowest payment is paid off first and the money saved each month is added to the monthly payment of the next debt. This strategy is pursued until all debts are settled. While snowballing may be a simple concept to grasp and follow, it rarely makes the most financial sense.
This is because snowballing prioritizes debts based on their monthly payments and not their interest rates. Debt stacking is a strategy that takes interest rates, balances and monthly payments into consideration, and it is supported by more financial experts because it places more emphasis on debts with high interest rates. Consolidation is another option that involves taking out a large loan to pay off credit cards and smaller loans.
Lawmakers gave Americans an escape from unmanageable debt by drafting the nation’s bankruptcy code. Attorneys with debt relief experience might explain how filing a personal bankruptcy allows most consumer debts to be discharged or paid off over a period of three to five years. Pursuing bankruptcy may also provide relief from bill collectors because an automatic stay is issued when a Chapter 7 or Chapter 13 petition is filed that orders creditors to cease their collection efforts.