What is the best way to analyze whether I should try to end my debt struggle through debt consolidation, or bankruptcy, or keep going?

I have a huge, embarrassing, amount of debt: $76,000 credit debt (97% of credit limit), plus $16,000 student debt with current minimum payments of $1,800 per month. My credit APR rates vary from 10% to more than 20% with small bits at even higher APR. I can't involve my spouse, so can't do a home equity loan, which would be my best bet. I still have a good FICO Score 735-740. (My Roth IRA has $22,000, my 401(k) has $30,000 and our joint savings are $30,000). My age is 48. At the start of the year, I made a (helpful) visual Excel sheet/graph to help track progress (right now my minimum payments of $1,800 bring the total balance down about $800-$1,000 per month, and I struggle to make that minimum). I do see that I could get through this if I can keep up and even increase payments in future, and later do a balance transfer to 0%. So I am inclined to forge ahead, but the "mountain" is very large, and I am self-employed so I don't qualify for loans, due to variable income and my debt/income ratio.
Option 1: Forge ahead with discipline, consider getting an extra job or income.
Option 2: Consolidate my debt, but ruin my credit score.
Option 3: Declare bankruptcy (but how does that affect my retirement accounts and domestic partner (not spouse), and home mortgage?).

How can I calculate how long this will take me at my current rate? If I was able to find a job paying say $70,000, could I self-qualify for a loan with W-2 income?

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1 Answer

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Answered by Dave Bradley, Investment Manager (Financial Advisor) in North Charleston, SC
Nothing to be embarrassed about. Sadly, many folks either stick their heads in the sand hoping the debt will magically disappear or they pray to win the lottery and live happily ever after .

Nothing is impossible and hope & pray is more of a hail Mary than an efficient strategy.

Let's break this down:

Where are you financially?
In debt and you have a spreadsheet that helps you determine how much you can afford to pay to reduce it-that's a start, now use consistency and discipline to keep track of all that debt reduction and DO NOT UNDER ANY CIRCUMSTANCES add any additional debt until you have this under control-meaning you can pay off all your debt/equity ratio is less than 1.

Where do you need to be financially?
Now, you are self employed- let's dig into your retirement plan-Are you using a self-directed plan? Why not combine the ROTH & 401K into a self directed ROTH 401K- the same ROTH rules apply.

How about a business match for added funding and tax deductions, even a spouse IRA helps. Lot's of different types of plans. Once you have decided which is in your best interest, let's get you a great CAGR-Compound Annual Growth Rate. What is your MARR- Minimum Acceptable Rate of Return? How about your average interest rate on all the debt? Is s over 10%? Well pay yourself a higher rate? Use GARP- Growth At a Reasonable Rate. No Idea when you want to retire but give me some more information an we can find your number-The amount you need to be financially independent and enjoy the lifestyle you deserve-because you earned it.

Ok- Now take a deep breath, relax, accept your situation for what it is and together we will make a RULERS out of you.

Understand -what you are doing and why
Love -what you are doing
Event -that got you here
Reduce -your basis (debt in your case)
Story -which will come true when follow your plan and focus on the story

Contact us directly to discus your situation in greater detail. No obligation. Keep in mind the first Rule in Investing. Don't lose money.

Let's not discuss what ifs.
We have a 3 day workshop in April 2016. You can watch it at home via a wifi connection. No charge if you can attend all 3 days.
It's not what you make, It's what you keep that determines your lifestyle

| 04.02.16 @ 04:45
Comments 2  
Kevin — Hello David, I am in a similar situation to the requestor here. You mention you have a 3 day workshop coming up this month. Could you please provide me more information about this so that my family and I can start getting a better handle on our finances? | 04.06.16 @ 19:09
Dave Bradley, Investment Manager (Financial Advisor) in North Charleston, SC — Hi Kevin, Sure, contact me through my profile and I'd be happy to share the link with you if you'd like it. Dave Bradley | 04.06.16 @ 23:12
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$commenter.renderDisplayableName() — {comment} | 10.26.16 @ 02:38
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