More debt reduction advice - avoiding bankruptcy

More consumer debt reduction articles

The following is a group of articles written by Scott Bilker that address common questions regarding consumer loans and credits. This is just a sample of his writings. If you are interested in the topic of personal finance and credit I suggest you visit his website by clicking here

Scott Bilker is the author of the best-selling book "Credit Card and Debt Management." He is also the Editor and publisher of the FREE DebtSmartŪ E-mail Newsletter ( Sign up today!

Debt Reduction vs. Mortgage Down Payment
by Scott Bilker

Dear Scott,

My husband and I are in debt for about 28k and have recently sold our home. We are looking to buy a more expensive house in a better neighborhood and school district for our two kids to start school in. I am currently working a lot of overtime, but am not sure if I should try to payoff some of the debt or save for a down payment. Could you please help me?? --Anna


Great question! Actually, I was in this exact, and I mean exact debt too, situation when I purchased my house.c The answer is to save for the down payment.

If I could do it any way I want, I would prefer to pay back the debt then cash advance the down payment for the house but you can't do that. You must have a down payment from you own money to buy a house. You can have money gifted to you by family members and even borrow from your 401(k) to get the down payment. One thing you cannot do is borrow money for the down payment from credit cards.

Save, save, save.

Good luck with your new house!


Question 2

Thanks for the info! I just want to clarify something. We are going to borrow from my husband's 401k and we do have some savings, but should I try to save to get to a 20% downpayment and have no remaining money, or should I just pay off stuff to lower my monthly bills and put down less than 20%?


Answer 2

I would save for the 20% down payment. It sounds like your close and there is the benefit of not having to pay for mortgage insurance when you put 20% down.



7 Steps for Eliminating Your Debt
by Scott Bilker

Many people may say that shedding debt is common sense: "Pay for everything in cash and don't incur any debt." Yeah, sure, easily said when you have a household income of 70 to 80 thousand (and no kids). Obviously the best way to handle your finances is to pay for everything with cash. Not everyone has that luxury.

I don't know anyone who purchased their home with cash. There are also other situations that arise-like medical and family emergencies, unexpected car failure, and the list goes on. Just because you have some debt, doesn't necessarily imply that you've mismanaged your entire financial life.

Once you suspect that your debt is starting to get as large as the federal government's, you may want to consider a quick diet for debt reduction.

Step 1: Stop incurring more debt-unless it's an emergency.

One thing I really hate doing is telling people how to spend their money. I prefer to help people identify the best lending deals. Unfortunately, the truth is that if you want to freeze your debt, you must freeze your spending, especially if you don't have the income to support that debt. No spending, no debt. Real simple.

Step 2: Evaluate your financial condition-get a plan.

"If you fail to plan, you plan to fail," that's a guarantee. Creating a plan involves many steps, like taking a close look at each and every creditor you owe, understanding exactly how much it's costing you to have each particular debt, and reviewing your payment history with all creditors (did you pay on time).

Your plan must be a roadmap that takes you from debt to debtless. To do that you need to know how much your total debt is and how long it will take to pay it off, given your current payments. Once you know that, you can look forward to the day when your debt is gone!

Step 3: Realize there are money-saving options available and keep your eye out for those opportunities.

Ever notice that when you become interested in buying a particular car you suddenly see cars of that model driving around, where before you didn't see any? Well, those cars didn't just get there; they've been there all along. The same is also true when you start searching for debt-reduction options. As you start to dig into debt management and closely examine your situation, you'll start seeing many opportunities to save money. For instance, those low-rate, credit card offers that you find in your mailbox almost every day.

Last year alone, banks mailed some 2.5 billion of these offers. Many of them will save you money, but you need to read the fine print and be able to calculate if their offer is truly something you can use to your advantage. Stay tuned for future articles to learn how to evaluate those offers.


Knowledge is useless unless you put your plan into action. Don't be lazy! Formulate your money-saving plan today and, most importantly, follow through on it! Simply knowing the route from your home to your destination won't get you there until you actually start traveling.

Step 5: Track credit card offers and loan offers.

You know those low rate offers I was talking about before? Well, you need to track them and save them in a box or file. When you need to turn to another bank for cheaper financing, you'll have already done the research and know which banks to contact. Many who have already pre-approved your application. Also, you need to track offers from your existing credit accounts. They'll be the easiest to take advantage of since you already have a history with them-hopefully a clean, on-time payment history.

Step 6: Don't be hasty in closing credit-card accounts.

When you cut up your credit cards, you cut out your options. As long as your current credit-card accounts (and lines of credit) aren't charging you any fees for inactivity, then it's in your best interest to hang on to that account. What I do is put zero-balance cards in a file called the "credit-card graveyard." When an offer comes along that saves me money, I "exhume" them.

The problem with closing your accounts is that you will be at the mercy of whatever bank(s) you decide to keep. That's the same as saying that you'll shop at one store no matter how good the prices are at other stores. Don't give any bank a monopoly on your business; keep you options open.

Step 7: PAY ON TIME-no matter what it takes!

If there is sin in debt repayment, it is paying late. This hurts you immediately with late fees, which would have been better used to reduce your debt, and a strike against your future bargaining power. But most importantly, if you pay late you may not be able to get the best rates and deals when you need them most; like on a mortgage. In the long run, that kind of negligence can cost you thousands of dollars. I would, and have, borrowed money to make sure my payments get there on time. The result is that my rates have been under 8% APR for all my credit cards for the last 10+ years.

Debt management is a continuous process so stay on top your situation and keep more of your money!

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