Quick Answer: Prioritizing the $4,600 collection account and $1,600 personal loan before the $27,000 in credit card debt makes sense as far as it goes. But with $550 a month to work with, paying off $33,200 the avalanche way is a multi-year project — before locking into that timeline, I’d run the numbers on bankruptcy, since at this debt level it can clear the balance far faster and without draining years of income that could go toward retirement instead.
“Dear Steve,
I owe $4600 in collection account that I am currently paying payments on. I owe $1600 to a friend. And I have 4 credit cards that are now sold to various people that I haven’t paid on in 2 years.
I currently have finally gotten to the point of having $550 to use to pay off these debts. My thought process is to pay off the $4200 first and the personal loan before I attack the credit cards. I am 50 years old.
Every weekday I read the enforcement actions, filings and fine print the outlets skip, and turn them into the one or two moves that actually improve your position — a rate worth moving for, a fee you can refuse, a deadline to beat before it costs you.
In the latest issue (Sep 11): You drive to the dealership to pick up the car. There is no car. There was never a car.
I write Your Money Actually most weekdays — actionable money information you will not find anywhere else, and the small decisions that compound. It is free, I sell nothing, and I take no money from any company I write about.
I have always worked and paid my bills however this time life got in the way. Lost jobs, used credit cards to pay off bills, the same old story. I rent an apt and pay cell, cable (recently just got after 5 years of no tv), elec, gas, fuel for vehicle (paid off), car insurance totally $1400. This leaves me about $700 for the month. I decided to bite the bullet and for 10 months pay the current debt off. My credit cards are $1300, $7500, $10000, and $8200.
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I don’t hang out with friends that much anymore because I cant afford it. I don’t buy coffee, and a movie is maybe once every 3 months if that. I usually hike and walk-free. I do cook at home.
I have a dog that probably thinks I am nuts since she is the one I talk to! I am in pretty good spirits in all seriousness, but tired of not getting anywhere. I used to work two jobs since I was 14 until last year. Maybe I need to do that again, but the walking and hiking keeps me more balanced emotionally at this time.
Am I heading in the right direction? Which card do I pay of first once I get to the credit cards. Is there a better way of doing this? Will I ever be able to own a home again since I am 50? If not, I would be okay with renting and getting my credit back in good standing. I don’t think I need to contemplate bankruptcy but maybe I am wrong.
No, I don’t sleep at night.
The Alaskan Lone She Wolf!”
Dear Alaskan Lone She Wolf!,
There are all kinds of ways of looking at life and the path out of debt. For some they feel the right path to follow includes years of just getting by and digging out of that hole. I understand that point of view.
My mother is currently dying from cancer. She probably has a few months left. Those realities give you a different perspective on the issues.
You’ve spent a large amount of time just limping by and never getting ahead. Is your life or your friendships better for it?
Answer me this, do you have a greater responsibility to try to fix the past mistakes or do better in the future?
Are you safer by using all your money for the next six years trying to repay your debt or going for a legal second chance and then using the money to save and build an emergency fund for financial misfortunes to come?
Every person has to make those decision for themselves.
Let’s start with the basics.
I’d suggest you first read How to Get Out of Debt. The Honest and Unvarnished Truth and The Truth About The Success Rates, Failure Rates and Completion Rates of Credit Counseling, Debt Settlement, and Bankruptcy. They will give you a great overview of what we need to deal with to get you moving in the right direction.
Then use the free How to Get Out of Debt Calculator to review your options.
After that, come back here and comment about what seems to make the most sense and let’s discuss that.
If you decide that bankruptcy is a logical path then you can find a local bankruptcy attorney here. Additionally, a bankruptcy would not prohibit you from repaying any creditor or friend that you wanted to.
Please post your responses and follow-up messages to me on this in the comments section below.
Before You Sign Anything: Run any debt relief contract through the free Contract Decoder to spot hidden fees and unfair terms. Check the company’s complaint history with the Scam-O-Meter.
Compare Your Real Options: Most debt relief companies won’t tell you about all your options — especially the ones they can’t profit from. Credit counseling has a 21-27% completion rate. Settlement resolves about 1% of enrolled debts fully. Bankruptcy has a 95% discharge rate — and protects your retirement. Take the Find Your Path quiz for a recommendation based on your actual numbers.
