How To: Overcome Financial Stress and Get Your Finances in Order

Before the Great Recession, financial stress was the number one worry of over 70% of Americans. Since the Great Recession, money issues have become increasingly depressing for some people. With the loss of a job or a decrease in income, many people can have a prolonged stress that sits like a ton of bricks upon their shoulders. This chronic financial stress is extremely detrimental to the body, and you will begin to affect the lives of those around you. Before you know it, you may start to rely on bad habits to relieve your stress. How can you get a foot in the door of overcoming your financial stress and straightening out your money matters? Well, it obviously doesn’t happen overnight, but if you keep reading, you may gain some insight as to how you can begin.

Setting Goals. 

Though you can’t control all of your circumstances, you can initiate steps towards improving them. One of the most important first steps is setting a goal. This might sound simple, but that’s because it is! Before you can even think about your goals, you need to take a step back and review your finances. Doing this on a monthly basis could be beneficial for you, and don’t forget to check out your budget to know where exactly your money is being delegated.

Once you’ve had a chance to look over and get really familiar with your debts and income, set some goals. We are always setting goals in life – (financial, fitness, education, etc) and this goal is just like the others. It should have a purpose and a particular plan of action that will help you to attain the goal. Rather than setting a broad goal, attempt to set specific goals. Maybe your goal is to have $5,000 in your bank account within the next 2 months. You can break that broad goal down into smaller goals, like making yourself more valuable to your employer or improving your business plan. No matter the goal, review your financial state, set a goal, and clearly define the parameters and steps needed to reach it.

Make it measureable.

As covered in the last paragraph, clearly defined goals will be of more benefit. A goal such as “having a lot of money” does not have clear parameters. Some financial professionals suggest keeping 3-6 months of expenses in your bank account. Rather than setting a goal of “I want to always have 6 months of expenses in my account, sit down and put an actual value to that 6-month amount. This will focus your mind on a specific number instead of a vague sum.

Realistic and Reachable.

When you are setting your goal, it’s crucial to ensure that it’s one that you can actually attain. If you don’t have a good chance of reaching the goal, what was the point in setting it? Since you’ve already reviewed your finances and budget, you know whether or not a goal is realistic. If the goal is realistic, in your mind, you know that it’s attainable. Maybe your goal is adding $500 to your savings account each month. If you’re currently struggling to pay rent and have a low income, that goal may be a little out of reach. Work with what you have.


If you have no time limit on your goal, it might take you forever to reach it, which in turn makes setting the goal a waste of time. Part of defining a goal is listing a deadline so that you are able to separate your one big goal up into smaller chunks. Focusing on reaching your goal week to week can be mentally easier than seeing a huge number in front of you and stressing about how to climb that mountain.

Financial stress can take a toll on your mental, physical, and emotional state, which is why it’s so crucial to alleviate at least a small portion of that worry. Now that you have a few pieces of advice on how to overcome your financial stress, don’t wait until you find yourself in a desperate financial state. If you aren’t sure how to go about everything on your own, don’t hesitate to get in contact with a professional debt resolution/credit repair expert. They will be able to help you in setting a proper budget as well as raising your credit score and negotiating with any creditors to whom you may owe outstanding payments.


5 Ways to Get Caught Up on Bills After the Holidays


debt resolution

Just as a little too much partying on New Year’s Eve can leave you with a painful hangover — a little too much spending during the holiday season can result in a financial hangover. Unfortunately, the latter can’t be cured by drinking plenty of water and getting some extra rest.

When your out-of-town loved ones have gone back home and the decorations are starting to come down, credit card debt and crumbling finances can be a cold, unwelcome reality check. While we want our holiday memories to last a lifetime, holiday debt is something we’d really rather not think about. Avoiding the truth about how much you really spent on gifts for all and sundry won’t make the problem disappear; what it will do is snowball the interest and late fees.

5 effective ways to begin tackling your excessive holiday spending:


  1. Assess the Situation/Make a Plan

Tackling excessive debt is anything but fun, but it can’t be avoided. Begin by looking over all of your banking statements and making sure that you agree with all listed charges. Then, make a list of your debts from smallest to largest (based on total amount) to get an idea of  how much you’re in the hole for. Next, create a list of their interest rates from highest to lowest.

Once you have a clear picture of what you’re dealing with, choose either the Snowball or Avalanche debt repayment strategy and start working on the plan of your choice ASAP.


  1. Return, Return, Return

Did you end the holiday season with scads of decorations, gifts, or other items that were never even opened? Perhaps you bought gifts for a friend’s significant other only to discover that they broke up in November. Maybe you lost self-control and brought home that ridiculously overpriced holiday decoration you’ve coveted for months.

Do not hesitate — GO NOW, this minute, to return any still-in-box, tagged items. If you are able to get your money back – put it to good use by making an extra credit card payment before you have a chance to buy something else you don’t need. Without a receipt? Use store credit to buy something you’d purchase anyway, like home goods or diapers.


  1. Work to Cut Regular Monthly Spending

If you have assessed your budget and concluded that there isn’t enough money left over each month to pay off your credit card debt, then reducing your monthly expenses is a must. Chances are, you have at least some recurring monthly payments that could be eliminated or decreased. Try calling your cell phone provider or cable company to see if they have any New Year’s offers or plans that would be cheaper than what you’re currently paying. Be sure to mention that you’ll have to change providers if they can’t lower your monthly bill.

Look around for a new (lower) quote on home and car insurance. Keep searching until you find a company that has the coverage you need and is willing to work with your budget.

Lastly, assess any larger loans you’re currently repaying (mortgage, home equity, education). Consider refinancing or modifying some or all of those more substantial loans. Every dollar you decrease your monthly payments by can go directly toward paying off credit card debt.


  1. No Credit Diet

Until you have that credit card debt completely paid off, we strongly recommend putting yourself and your family members on a “no credit diet.” When you purchase anything, use debit cards, cash or write a check (ancient, but still better than spending money you don’t have). Using these forms of payment will avoid racking up any more credit card debt.


holiday spending


  1. Every Dollar Counts

Everyone has some expenses that could be considered “flexible” – grocery bills, clothing, entertainment, recreation, and more. Determine what items in your budget are ‘must-haves’ and what you or your family could go without.

In short: Evaluate your spending habits and start making better choices until they become habits.

Example: When you’re tempted to buy that five dollar cup of coffee, think about how quickly your coffee habit could put a dent in your debt. Bonus: Getting off caffeine (or reducing your intake) is good for your blood pressure!

We’ve given you a few ways to start lowering that holiday debt that you had so much fun charging last year. Take the tips that work for you and add your own debt pay-down tricks into the mix.

One caveat: If your holiday debt goes far beyond just the recent holidays, and you’re finding your monthly minimums are more than you can handle, regular debt pay-down strategies probably won’t get you very far. That doesn’t mean you’re out of luck.

When you’re so far behind on your bills that they just keep piling up, unpaid, on your kitchen table, it’s time to ask for professional help. Call Veitengruber Law. We will provide you with a holistic analysis of your debt and tailored solutions that will get you “back in black.”

The best part about reaching out to us for help?  The first meeting’s on us.

Divorce Doesn’t Have to Ruin Your Credit Score!

While the act of separating and/or getting divorced from your spouse won’t affect your credit score on its own, it is likely to cause indirect damage to your finances. So, while there won’t be a giant mark on your credit report that says “GOT DIVORCED, automatic 100 point deduction,” your score can and will begin to drop after a divorce if you aren’t hyper-aware of the potential damage.

In order to take proactive steps to maintain a good or excellent credit score during and after a divorce, you first have to know what you’re up against. Some of the biggest factors that cause divorcees financial strife include:

  • Suddenly dropping from two incomes to one income
  • Joint debt that goes unpaid by your soon-to-be ex-spouse
  • Shared bank accounts that can be drained by either party
  • Spiteful actions of one spouse, like running up a joint credit card balance
  • Lack of an independent financial identity and/or credit history
  • Divorce expenses
  • Child support and/or alimony

Even if the split is something that will ultimately make you happier, the process of getting to that end goal is undoubtedly going to be stressful. It is much easier to miss a bill payment or make other financial errors when you are stressed to the max.

Why is My Credit Score so Important After Divorce?

Losing a few credit score points shouldn’t make or break anyone, right? In many situations, this may be true. However, for those people who are going through a divorce, maintaining a solid credit score is IMPERATIVE.

You may need to buy or rent, initiate utility services for, and completely furnish a new home. In order to do so, your credit must be fair to good at minimum (ideally in the upper 600s or above).

Additionally, many divorcees seek higher-paying jobs in order to make up for the second income that was lost in the split. These days, it is common practice for employers to check the credit history of all potential hires before extending a job offer. If your score tanks during or after your divorce, it may prove difficult to make even a lateral employment move.

What Can I Do to Maintain a Good Credit Score After my Divorce?

As soon as you know that divorce is in the cards, your first move should be getting a current credit report from each reporting agency. This will allow you to know precisely what debts and recurring payments are officially your responsibility as opposed to your spouse’s.

“Knowledge is power, but only wisdom is liberty.” ~ Will Durant

After you have current credit reports in hand, it’s important that you take smart action based on the information contained in your report(s). For example, you may not have realized that your spouse listed you as an ‘authorized user’ on a credit card. If the card’s balance gets maxed out due to extra expenses during your divorce and your ex-spouse stops making payments, you could be held responsible for the balance. In addition to removing yourself from any joint accounts, you should:

  • Create an amended budget using your adjusted spending limit.
  • Make it a priority to make all of your payments on time.
  • Closely monitor any accounts that you’re unable to separate immediately.
  • Get educated on the topic of good financial habits.
  • Seek the help of a financial advisor or NJ credit repair attorney, if needed.





How to Invest in Your Future When You’re Broke

If you find yourself “barely” living paycheck to paycheck, the worry of not having any money saved can eat away at you. The concept of planning for future events like sending your kid(s) to college, helping them get married, and enjoying your own retirement can feel impossible when you can hardly afford your current lifestyle.

Although it may seem completely unimaginable, you can make a plan for your future; in fact, strategic financial planning may be the one thing that also helps you live better now as well.

The main reason most people don’t have a real savings plan in place is because they simply feel they don’t have enough money to do so. The change that needs to happen isn’t in making more money (although that is obviously not a bad thing) but in getting a new mindset.

The first step in getting a new money mindset is to change your inner dialogue from “I’m broke! I can barely even pay my bills!” to “Let’s see if I can find ways to improve how I spend money.”

While you may feel that you are barely able to meet the financial demands of your life, most people find that they’re spending too much in at least one area that can be cut back. Take a good, hard look at where all of your money goes for at least one complete month. Write down each and every cent that’s spent, organized into three categories:

  •  Necessary/survival: Housing (mortgage payment or rent), utility bills (electric, gas, water/sewer, trash removal), all forms of necessary insurance (homeowners/renters, car, health, life), food (for eat-at-home meals only), vehicle payment(s), vehicle maintenance, gas.
  • Debt: College/student loans, credit cards, personal loans, and any other forms of debt.
  • Luxury: These are things that, while dearly beloved by many of us, can be eradicated without causing you extreme hardship. Examples include: cable/satellite tv packages, streaming services (Netflix, Amazon, Hulu, HBO Now), high speed internet connection, Xbox Live membership, restaurant meals, magazine/newspaper subscriptions, cell phone(s) and their service plans, gym memberships, satellite radio, hair/nail services, frivolous (unnecessary) purchases like new electronics, expensive clothing/shoes, and other items that you simply don’t need.

Once you have a clear picture of exactly what you’re spending all of your money on, you will be able to create a plan to start saving money – it’s that simple!

Your mindset must remain steadfastly dedicated to saving money in order for this to work, however. See that list of luxury items? You are going to have to decide which of them you can either cut out entirely, or scale back. You will likely be surprised at how many companies will be happy to work with you to lower your monthly bill when you explain your situation. They’d rather keep your business at a lower profit than lose you altogether.

Instead of having your nails painted professionally, invest in the supplies needed to do your nails at home. Listen to the (free) radio in your car or pop in a CD rather than paying for satellite radio. Cut out your cable tv and keep your streaming services. Cancel your gym membership and get outside to exercise or start an indoor workout program – there are a multitude of free exercise videos on Youtube.

Even something as simple as not stopping before work to get a coffee and breakfast on-the-go can make a difference. If you spend $5 every day for a breakfast to-go, you can put that money directly into your savings account by eating breakfast at home. This habit can save you over $1,000 a year!

Another potential way to save money every month is to negotiate your interest rates with any lenders or credit card companies. You may also qualify for a loan modification (even for your mortgage loan) wherein the terms of your loan would be adjusted in order to make your monthly payments lower.

After you have found several good ways to save money each month – be sure to put the money saved into the right place! The best way to make sure this happens is to put a set amount into your savings account before you pay any bills or spend any money. That way you will train yourself to live on the money you have left after you’ve already invested in your future.


I Received a NJ Bankruptcy Discharge: Now What?


Having all or many of your debts erased in a New Jersey chapter 7 bankruptcy is referred to as a bankruptcy discharge. Most people filing for chapter 7 feel a great relief when their discharge is granted.

While you are deeply immersed in the bankruptcy process, it can be easy to view your discharge as the finish line. However, once you’ve passed that finish line, you’ll have new goals to reach for, and achieving these goals will be the true measure of your future financial success.

After bankruptcy, you’ll be aiming for repairing your credit score, which will take a hit when your bankruptcy is reported. Lenders will want to see that your credit score is slowly rising post-bankruptcy. While this isn’t always easy to do, it’s definitely not impossible. You can:

Apply for a secured credit card – While significantly different from a traditional credit card, secured cards are backed-up by money you pay up front. While few banks will see you as an ideal borrower right after bankruptcy, some offer secured card programs to borrowers who need help rebuilding their credit. This is a temporary solution that you should only use until your score rises enough to make you eligible for a traditional credit card.

Apply for a secured loan – This type of loan typically involves a credit union or a local community bank. You can either “borrow” from funds that you supply to your own loan account, or borrow money wherein you must make certain necessary payments before any funds will be released to you. While not a typical loan, these baby steps help your credit score because your loan activity will appear on your credit report, helping other lenders to see that you’re moving in the right direction.

Ask a family member to co-sign a loan or credit card – It’s true that we typically do not advise our clients to co-sign loans for friends or family members. A co-signer is putting a lot of faith into you, because they are essentially letting you “borrow” their good credit. The only times we recommend considering co-signing is after bankruptcy and when you truly have zero other options.

Request to be an authorized user – An alternative to finding someone to co-sign a loan or credit card is to request to be listed as an authorized user on a family member’s credit card. This is probably the option that will have the least positive effect on your credit score, but it can help a little bit. However, ensure that the lender in question reports all payment activity to credit bureaus for all authorized users, not just the main account holder.

As you begin your journey post-bankruptcy, the most important thing you do will be to make every single payment you owe to anyone ON TIME. This includes the aforementioned secured loans as well as utility bills and any other monthly expenses. Bankruptcy discharge should have given you a huge break from significant debts, leaving you with enough money to pay for your living expenses with a little bit left over each month. This means there are no more excuses for late payments.

When we work with a bankruptcy client, we also offer credit repair assistance after your discharge. If you’ve received your NJ bankruptcy discharge and you’re still struggling, we’re here to help you figure it all out.

Image credit: John Eisenschenk

How to Tell if You’re Living Beyond Your Means


The recent popularity of YOLO-based thinking (You Only Live Once) has encouraged many people to take life by the horns. Learning to stay in the present is beneficial for so many reasons. After all, everyone’s living on borrowed time, so really appreciating life’s little moments is a key factor in living a fulfilled life.

Some YOLO enthusiasts take the concept one step further, however – following a “Treat yourself!” mantra that goes beyond staying present and moves toward the idea that since you only live once, you might well “live it up.” This mentality can very easily lead to spending more money than you actually have on things that make you feel good – that new pair of shoes, the latest tech gadgets, getting your hair professional styled, a new car, etc.

Of course, you can find yourself living beyond your means even if you never knew what YOLO stood for until now. Even spending slightly more than you have over a period of time will eventually catch up with you. Regardless of how you’re spending too much, when you reach the point of no return, you’ll realize that you don’t want to spend the rest of your life digging yourself out of debt. THAT is definitely no way to live.

You might be wondering, “Do I spend too much?” It can be difficult to know for sure if you’re living beyond your means, especially if you haven’t hit any significant bumps in the road thus far. You’re house isn’t in foreclosure, your credit’s ok, you’re not late on your car payments, and there’s always enough food on the table. Even when it seems as though everything’s alright on the money front, there are still some signs that should send up a red flag to indicate that trouble is coming.

  • You have zero savings. Many Americans today don’t put as much effort into growing their savings as the generations before us did. The problem with this behavior is that no one really knows what their future holds. Your steady job may not last until retirement. You could become disabled or experience any number of truly stressful life events that will limit your income potential. Without any nest egg to fall back on, any hiccough in your life plan could have disastrous consequences.
  • You charge everyday items to a credit card. Things like gas and groceries should be factored into your monthly expenditures and paid for with real money. If you regularly pay for necessities by credit card, it’s time to take a harder look at your spending habits.
  • The balances on your credit cards are headed up. Ideally, you should be working to pay down anything you’ve charged to your credit card(s) recently, which should only be more expensive purchases. If, instead, you find that your credit card balances just keep rising, you’ll be heading for bankruptcy sooner rather than later.

Get back within your means by cutting back on unnecessary spending now. Take a good hard look at all of your monthly bills and expenses compared with your monthly income. If you can find several areas to reduce spending – great! On the other hand, if literally all of your monthly income is earmarked for life’s necessities – you may need a professional’s help to get back on track.

Image credit: Cafe credit

When to Break Up With Your Financial Advisor


An important indicator of your overall financial wellness is how well you balance spending with saving and investing. You should always keep the end game (retirement) in view while simultaneously being able to enjoy life while saving for your children’s college education, if applicable. In order to coordinate all of the pieces of your financial puzzle most effectively, many people choose to work with a financial advisor.

Unlike many other professional partnerships you may form, your relationship with your financial advisor or financial planner can become more like a friendship. Because many people stay with the same financial planner for years, you can easily feel connected on more than a professional level. This feeling increases if you are also in the same circle of friends or live in the same town.

No matter how much you enjoy the company of your financial planner, if your needs simply aren’t being met, you have some decisions to make. You’ll either have to explain to your advisor exactly how he’s letting you down and what he can change to retain your business, or you can start looking around for someone new.

Reasons to consider leaving your financial planner:

  • Distrust – Being able to trust your financial advisor with your money is extremely important. If you’re asking questions and not getting answers that feel authentic, that’s a red flag.
  • Poor communication – While it’s true that financial planners are often very busy, if your phone calls and emails go unanswered for lengthy time periods, you’re paying for a service that’s sub-par.
  • Unclear expectations – The best financial advisors will lay out a plan when you first team up with them. The plan should include input from you regarding your specific goals for your assets and what you’d like to see happen. If your advisor never created an investment policy statement for you – it could signal that he’s skimping on his other duties as well.
  • No contract – As with any professional who provides you with a service that you will be paying for, your financial planner should present you with a clear contract at the beginning of your relationship that outlines his duties to you and what he needs from you as well. Without a contract, you have no way of knowing what to expect.
  • Distance – If you’ve been working with a financial advisor from afar and have recently decided to take a more active role in your finances, letting go may be your only option.
  • No fiduciary standard of care – In other words, if your advisor (or his firm) doesn’t put your interests ahead of their own, you have a very good reason for finding a new firm.
  • Fees – If you’re currently unhappy with your advisor’s fee structure and this is set by his firm, you may not be able to get the arrangement you’re looking for without finding someone new.
  • Additional services – Many people today are interested in working with a financial advisor who goes above and beyond making sound investments for them. Tax planning and basic budgeting advice are two services cited by clients who were unhappy with their current financial planning firm.

At Veitengruber Law, we pride ourselves on our vast network of professionals and we attend networking meetings every month to stay immersed in the financial, legal and real estate markets. We are more than happy to assist you in finding the NJ financial advisor that meets your needs. Give us a quick call [(732) 852-7295], or fill out the contact request form on our website. We’re always here to help!

Image credit: Nicolas Raymond

Holiday Shopping When You’re Flat Broke


Regardless of what holiday(s) you celebrate in December (Christmas, Kwanzaa, Hannukah), it’s traditional to exchange gifts with friends and family. It’s undoubtedly quite a magical time of year with gift giving adding to the excitement in the air. Finding yourself low on funds around the holidays can be stress-inducing, but you can enjoy the holiday season without spending a ton of money or ending up with a load of credit card debt.

First, it’s crucial to remember that the holiday spirit comes from within. Start the holiday season right by decorating your home while blasting Christmas music and drinking hot chocolate. If you don’t have a ton of decorations, you can create your own using recycled materials, which is another great way to get into the holiday spirit!

As many Americans have noted in recent years, Christmas has morphed into a new holiday called Giftmas, with a bright spotlight on way too many presents. To help your family take a step away from the materialistic focus, start a tradition (or several) that’ll be a great experience for your family without costing much.

Inexpensive or free holiday ideas include:

Volunteer to help those less fortunate than you. Not only is this an incredible bonding experience, it helps children (and adults) put everything into proper perspective. While your family may be struggling financially this year, there are plenty of others who are much, much worse off.

Do something, (anything) fun that doesn’t cost a lot of money. Have a Christmas picnic (if you live somewhere warm), have a movie night, play board games as a family, make holiday treats together, drive around town to enjoy all of the Christmas lights, go out for Chinese food, etc. You get the idea. Find a low-cost idea that makes your family happy, and enjoy the heck out of it.

Give homemade gifts. If your extended family members are also into the idea of saving money this holiday season, consider exchanging thoughtful presents that you each make by hand. You can use recyclable materials combined with some affordable supplies from the craft store. Not only does this save money, but these are often the gifts that people treasure above all others because they come from the heart.

Gift your services or expertise. If you possess a special skill (like knitting, woodworking, sewing or painting), give the gift of your services free of charge. Also consider offering your physical help to someone less able-bodied – (like help with grocery shopping, gardening, doing home repairs or walking their dog). Hiring someone to help out with these tasks can be expensive, so offering your services free of charge can mean a lot.

If you have some money in your budget and do plan to do some holiday shopping, save money by using DIY wrapping paper from materials you already have lying around. Stick to buying one gift per person when possible, but make it a meaningful gift, like a luxurious pen, personalized ear buds, a cozy blanket or a meaningful piece of jewelry.

Since it’s so easy to let holiday shopping get out control once you start, make a list of everyone you intend to buy a gift for and keep track of what you buy. In doing so, you won’t wake up one day in January to a massive holiday hangover without an easy cure.

Image credit: William Ross

Wage Garnishment: FAQ


What is wage garnishment?

If you owe money to a person or company that you have failed to repay or even begin to repay, the creditor (entity to whom you are indebted) can obtain a court order against you. This court document will order your current employer to take a specific amount of money out of each of your paychecks. This money will go directly to the creditor to whom you owe money.

How much of my paycheck can be garnished?

There are federal laws in place that limit the amount of money that can be garnished from anyone’s paycheck so that the debtor can still manage their monthly expenses. Generally, no more than 25% of your income (after deductions) can be garnished by any combination of creditors who may be seeking money from you.

Can I lose my job because of a wage garnishment?

If you have only one garnishment against your wages, your employer does not have the right to terminate your employment, nor can they punish you or treat you any differently because of a wage garnishment.

Multiple wage garnishments filed against you will give your employer some rights to take action. For example, suppose your employer discovers that you are neck-deep in unpaid debt and your job duties include dealing with company finances. Your severely disordered finances at home send up a red flag, and many times employers do have rights against you when the garnishments keep rolling in.

What can I do to eliminate a wage garnishment?

If you feel that a wage garnishment has been filed against you erroneously, you can protest the garnishment at a court hearing. You may also have rights if you cannot manage your bills with the wage garnishments set as they are.

Additionally, you can immediately eliminate any and all wage garnishments by simply paying off the debts in full. If you are starting a new job and don’t want your new employer to know that you owe money to a creditor, your best bet is to try to work with your debt negotiation lawyer to lower the amount you owe so that you can pay it all off in one fell swoop.

Can I eliminate all wage garnishments?

While you can “cancel out” a wage garnishment for say, credit card debt, defaulted loans or medical debt, some garnishments are harder (and sometimes impossible) to remove. For legal reasons, if you owe child support, your NJ county court will automatically set a wage garnishment action in place once your Final Judgement of Divorce has been entered. This guarantees that your children will always be cared for appropriately with no missed payments.

The same is true if you owe money to the federal or state government in the form of back taxes, or if you have delinquent student loans. In fact, wage garnishments for child support, taxes and student loans can even be initiated without a court order.

If you are facing a wage garnishment in New Jersey that you feel is inaccurate or that is preventing you from meeting your other basic financial obligations, work with your NJ debt relief attorney to either modify the wage garnishment order(s) or eliminate them if they are unlawful.


Image credit: Tax Credits

Snowball vs Avalanche: Digging Your Way out of Debt


If you’ve landed in a pile of debt that seems virtually impossible to get out from under, you may just need a new approach. Usually, people who have substantial dollar amounts of debt (not including mortgages and car payments) possess multiple credit cards. Realistically, credit card debt is one of the most problematic types of debt for most Americans. On average, Americans who are in debt have at least $15,000 in credit card debt.

“How did this happen? I only charged a few things!”

Let’s face it: this line of thinking is so easy to get into, and it leads down a very troubling path. The reason credit card debt racks up so (seemingly) fast is because charging is thoughtless. We don’t have to think about it – just swipe that card and worry about it later. Additionally, interest adds up much faster than anyone realizes.

Getting real with yourself about just how much credit card debt you owe can be painful. In this case, it’s best to treat it like taking off a bandaid and just do it quickly. Lay out all of your credit card statements in front of you and make a list of each card along with its current balance and interest rate. Tally up the total amount of debt. It’s not going to be fun, but sometimes a reality check is in order when a big change is needed.

Once you have a clear vision of all of your credit card debt, you’ll need to devise a plan for getting rid of it. There are several options that have been shown to work well: the Snowball Method and the Avalanche Method.

Snowball Debt Reduction Method

This type of repayment plan is best for people who have A LOT of different credit cards, store cards and other relatively small debts like doctors’ bills or personal debts to pay each month. It can be very easy to get overwhelmed and confused by the vast number of minimum payments coming in.

To give yourself a confidence boost, you can use the Snowball Method, which involves paying off the smallest debt first in order to eliminate it. You will continue making minimum payments on all other debts while you put more money toward your smallest debt.

After your smallest balance has been wiped out, you can successfully check that off your list of debts you owe! Then move on to the next debt (in order from smallest to largest) and pay them off one at a time until you have paid off all of your creditors.

Avalanche Debt Reduction Method

If you have a substantial amount due on one or more of your credit cards, the Avalanche Method might work best for your debt reduction plan. This plan has debtors tackling their debt in order of interest rate.

Thus, you would still focus on paying off just one debt at a time, while continuing to pay your monthly minimums on all other debts. The difference is that now you will first focus on the card with the highest interest rate. The thinking behind this strategy is that you’ll save more money in the end by eliminating high interest rate balances first.

The Real Truth

Both methods are fine! The most important thing is to do what motivates you to keep going. If the Avalanche Method feels too overwhelming you may end up back where you started really fast.

Choosing a debt reduction plan and sticking with it is what matters. *Special Consideration* – If you are looking at $40,000 in credit card debt and you make $30,000/year – you may need more than just a repayment plan. Filing for bankruptcy can be the best solution in extreme cases like this. If your debt repayment plan has you paying off your debts for more than five years, contact your local bankruptcy attorney to see what your best options are.


Image credit: Jon Nicholls