Thread: It's time for me to repair our credit

Well, I personally think it admirable that you want to avoid bankruptcy as most jump on it immediately these days. However, that option exists for people in your exact situation. I can't say that you should do that, but it might be worth looking into just as part of educating yourselves on what all your options are, so you can make the best decision for you.

As for consolidation and repayment, the best formula (in my opinion) is somewhat simple, though not necessarily easy to execute in real life. It goes like this:

* Identify the most costly debt (highest rates/penalties/etc)
* Of the most costly debt, start with the smallest balance and pay extra on it until it's gone
* Once the above debt is gone, go to the next smallest balance and pay extra on it (including the minimum payment you freed up by paying off the other one) until it's gone
* Repeat this process until you've gone through all of them, continually using the freed up 'minimum required payments' from paid off debts to pay down the next one

This process has worked for many, many people and is very effective because it has a snowball effect. Also, a big key to this is to not take any new loans while doing so.

Now, I realize this doesn't say anything about consolidation and that is because there could be some problems with that option.

First, I believe student loans are completely exempt from bankruptcy. So if you consolidate all your debt or a big part of it into student loans, then have to file bankruptcy anyway, you are shooting yourself in the foot because that would be debt that could be written off in the BK.

Second, consolidation isn't always the right thing to do. There are costs associated with it so you'll want to really analyze the numbers to make sure whatever option you find will actually save you money or improve your situation. And the truth is that many debt consolidators aren't there to help you, they are there to buy your debt and make money off you.

I hope this helps. Good luck and keep us posted how things go!