Debt Elimination


Debt stacking approach

In this approach you take all your debt, and list it from highest interest rate to the lowest interest rate. Personally work with the highest interest rate debt, being my target one to pay off first. In doing so I will not only pay off the debt but in addition eliminated my highest interest rate.

Credit cards are the most common area of debt so don't fall into the trap that they have out there for you.  They will all bombard you at Freshman Orientation. Setting up stands and start offering you credit cards right out of high school. Since most high schoolers are not exposed to much or any personal finance courses. Credit card companies assume that you know nothing about interest rates and how long it is going to take you to pay them off. Some things to look for to ensure you are getting the best credit card fit for you are :

  • First of all check Interest Rates, the lower the better
  • Also check promotions like 0% APR balance transfer availability, How long?  Adam's Advice
  • Furthermore what kind of annual fees are there if any? Penalty Fees?
  • Finally check for rewards: Cash Back, Travel Miles? Limitations?

Take a look how your credit is stacking up!

Compliments of the U.S federal government. It is your right as an American citizen to have a free copy of your credit report every 12 months. These reports will compare all three of the nationwide credit reporting agencies; TransUnion, Experian, and Equifax. So get your your Free Credit Report today.

Debt Stacking:

There have been times when I have a low balance on an account, ($200 or less) that I pay off first. Therefore I have the extra money to pay on my Target account. There is a lot to learn when it comes to credit cards and debt.

First of all you should look at your statements and see the dollar amount of interest you are paying per month. What you have to realize is if your interest amount is $37 for the month, your minimum payment therefore will be higher at $60. By paying the minimum payment of $60, you are in actuality only paying $23 off the principal amount due.  In conclusion At this rate you will never get rid of this debt.

Let's see if we can look at an example:

Macy credit card:  Balance is $2,000.  Interest rate is 18%

Walmart credit card:  Balance is $620.98.  Interest rate is 21%

With the two accounts mentioned above, I am going to pay off the Walmart card first because that is the highest interest rate of the two. Hence keeping more in my pocket.

Take a look:

New Balance $620.98

Minimum Payment Due $35

Payment Due Date 08/04/2017

Late Payment Warning: Especially relevant if they do not receive the Total Minimum Payment Due by the Payment Due Date listed above, you may have to pay a late fee up to $38.00  as a result. So by paying late, you consequently pay nothing on this account and owe an additional $3.00!!

Interest Explained: 

  • Interest - In its simplest form is the cost of borrowing money, and is normally expressed in terms of a percentage of the overall loan.
  • Fixed Rate Interest - A fixed percentage of the loan must be paid back during the life of the loan. Ex: $1,000 loan with a fixed interest rate of 5% per year, would cost the borrower $1,050. ($1,000 multiplied by .05.)
  • Variable Rate Interest - Allows the lender to set the interest rate to whatever the market conditions demand at any given time during the life of the loan.
  • Annual Percentage Rate (APR) - Is the total cost of the loan based on a yearly metric.
  • Simple Interest - Is calculated by multiplying the loan amount, by the interest rate, by the number of payment periods over the life of the loan. Ex: $1,000 loan at 10% interest per year, over the life of the loan which is 2 years will cost the borrower $1,200. (loan x interest x term) $1000 x .10 x 1 = $100 in interest for year 1. $1,000 x .10 x 1 = $100 in interest in year two.
  • Compound Interest - Relates to the charges the borrower must pay not just on the principal amount borrowed, as in simple interest, but also on any interest outstanding at that point in time. Using the same example as above ($1,000 loan at 10% interest per year, and a 2 year life on the loan will cost the borrower $1,210). $1,000 x .10 x 1 = $100 interest in year 1. $1,100 ($1,000 principal plus $100 accrued interest) x .10 x 1 = $110 interest in year 2.

Minimum Payment Warning:

Most noteworthy by making only the minimum payment each period, you will pay more in interest. As a result it will take longer to pay off your balance.

Example: Making no additional charges using this card, and only paying the minimum payment of $35. You will pay off the balance shown on this statement in about 23 months. Paying an estimated total of $772!

This example is taken from my actual bill and it comes with a Warning!  If that's not enough to shake you up, I don't know what will be.

In this example you pay off the Walmart card first. Pay the minimum amount on the Macy card, take the leftover money and pay it towards your Walmart balance. Things to keep in mind; Pay as much as you can pay over the minimum amount, pay it on time, you'll soon be crossing debt off your list.


Bankruptcy is a legal procedure involving a business or individual that cannot repay their outstanding debts. Bankruptcy offers a second chance to those deemed by the courts worthy of a fresh start. Also allowing creditors a chance to obtain some repayment based on the individual's or business' available liquid assets. Bankruptcy can essentially benefit the individual or business and the creditor alike. Individuals or businesses can receive a second chance to gain access to consumer credit and most importantly peace of mind having no more debt obligations. Creditors can also benefit because they will receive some debt repayment rather than none at all. There are a few types of bankruptcies available depending on the individual or business' financial situation:

  • Chapter 7: Involves the liquidation of assets. Most common filed bankruptcies for individuals or business' that have few or no liquid assets. Allows individuals to dispose of their unsecured debt like credit cards, and medical bills. If there are nonexempt assets like stocks/bonds, second car/home, coin/stamp collections these items will be sold to help repay some or all of the debt. Exempt or necessary assets such as only house/car, clothing, and tools for a trade will not be taken to repay the unsecured debt.
  • Chapter 11: Deals with company reorganization. The goal being to reorganize and become profitable again. This allows the company to operate normally while working on a debt payment plan. This is the rarest bankruptcy filed for.
  • Chapter 13: Debt repayment with lowered payment plans. For individuals who make to much money to file for chapter 7 bankruptcy. Also allowing for individual's and business' to create manageable debt repayment plans. In exchange for repaying their the creditors the courts allow them to keep all of their property.

Before making this tough decision be sure to first compile all your financial records; debts, assets, expenses, income. Listing them together for a better idea of your situation. Next you will need to seek credit counseling within 180 days of filing for bankruptcy to show the courts you have exhausted all other measures. Lastly contact a debt specialist to get a second opinion making sure bankruptcy is right decision for you. Here are some statistics to keep in mind while making your decision.

Chapter 7 is the most popular form of bankruptcy, making up 63% of individual bankruptcy cases in 2015.

  • Bankruptcy remains on your credit report for 7-10 years.
  • Some experts believe it’s most beneficial when you have more than $15,000 in debts.
  • Federal student loans, alimony/child support, debts that arise after bankruptcy is filed, some debts incurred in the six months prior to filing bankruptcy, taxes, loans obtained fraudulently, debts from personal injury while driving intoxicated are not covered under bankruptcy law.
  • There were 844,495 bankruptcy cases filed in 2015, and 97% of them 819,760 were filed by individuals. The top 3 debts causing bankruptcies were mortgages, auto and student loans.
  • In 2016, 95.5% of the 499,909 Chapter 7 bankruptcy cases were discharged. Meaning no debt was paid all was forgiven.
  • Only 22,388 of these cases were dismissed. Meaning the judge or  felt like the individual had enough resources to pay their debts.

Bankruptcy is a matter to take very seriously and may not be for beneficial for everyone. As you can see there are quite a few steps, statistics and options for filing for bankruptcy. Be sure to do your homework and ensure the process is done properly. Remember bankruptcy isn't the end of the world, but could be the beginning if done right . We all make mistakes. Bankruptcy is made available for those individuals or business' that have learned from their mistakes and our ready for a second chance.