Should I File Bankruptcy: How Much Are Your Really Paying?

The decision to file bankruptcy is always tough.  One of the hardest parts is figuring out how much you’re actually going to get out of the bankruptcy.   There are many people who can just barely handle their monthly bills, and they’re trying to hold off bankruptcy as long as they can.  What they may not realize is that just holding on is costing them money.

How?  It’s called amortization; and it’s not coincidence that the Latin word for death – mort.  Amortization makes debt last forever.  It’s easier to understand with an example:

Suppose you have $10,000 in credit card debt, with a common interest rate of 29%.  You decide to pay off the debt in five years, instead of filing bankruptcy.  So how much does it really cost?  The answer is $19,045.12.  That’s right, in five years you pay almost twice what you originally owed,  You are paying an extra $9,045.

Now let’s suppose that you have $50,000 in credit card debt.  If you pay it off over five years at 29% interest, you will spend $95,225.61.  It will have cost you an $45,225.61 over five years.  If you didn’t have to pay that interest, it would be like getting a $9,000 per year raise for the next five years.

If you’re having trouble paying your bills and you’re just hanging on, it’s important to realize what that debt is really costing you.  Those examples assume that you can make payments every month for the next five years on just that credit card debt.  If you did not have to pay that interest back, you could be putting that money in a retirement account, planning for your kids’ college, or saving for a house.

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