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Bankruptcy is a strong choice when the debt load is overwhelming

Residents of Washington state, like those in other states, are experiencing a spike in credit card debt. Balances and the gross amount of debt collectively accumulated are now being compared to what existed in 2007, just before the financial collapse and beginning of the recession. These trends may be signs that the country is headed again for trouble with a glut of unpaid debt, which generally also is evidenced by an increase in bankruptcy filings.

For those who can pay their debts down, there are a few basic tips for wise debt paying. Remember that credit card debt with high interest rates is considered "bad debt" and probably the worst kind of debt. The consumer drowns in a sea of rising balances fueled by a huge interest generator. The debtor should therefore look to paying toward these accounts after all minimum monthly payments have been made.

The consumer must pay the minimum payments due each month on all accounts first. Then he or she may apply the remaining income to those accounts with high interest rates. The payment of high interest accounts first is called the "debt avalanche" method. It addresses the worst kind of debt and tries to purge it from the debt portfolio.

Some people, however, like to pay those accounts with the smallest balances due first. After making all minimum monthly payments, they will then take the income remaining and apply it to the smallest balance due. This "debt snowball" technique pays off the targeted account more quickly, giving the debtor a psychological lift in seeing a debt account wiped out.

With the debt snowball, however, one ends up paying more interest. It is obvious, on the other hand, that none of the foregoing techniques work at all if the debtor does not have money left over each month after making all the minimum payments due. When there is nothing left over, consistently month after month, then bankruptcy is likely the best remedy. When a Washington state resident files a Chapter 7 bankruptcy, it will erase all unsecured debt quickly and permanently, without making payments.

Source: U.S. News & World Report, "Debt Repayment Guide: Everything You Need to Know About Repaying Loans", Susannah Snider, Jan. 12, 2018

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