RESOLVE to Be Debt Free in 2019


According to U.S. News, approximately 80% of New Year’s resolutions will fail by the second week of February.  So if you’re like most people, you may have resolved to a “new year, new me” attitude, but the odds (unfortunately) are against you.

There are many reasons why experts believe resolutions fail in such staggering numbers.  In my experience, however, the biggest reason is too much thinking, not enough doing, or “all talk, no action” as the common saying goes.

If you resolved to be debt-free this year, you may be facing a hefty task.  So read on.   If you want to rid yourself of debt, you generally have three options: (1) pay your debt; (2) settle/consolidate (which is another way of saying ‘pay your debt’); or (3) file bankruptcy and have your debt forgiven (what we lawyers call a ‘discharge’).

While I am a huge proponent of bankruptcy (and I don’t say that just because it’s what I get paid to do), I recognize that there are many reasons why someone may not want to file (or other reasons why they can’t).  Therefore, I will take you through the PROS and CONS of each of these common options.


Paying your debt is a great option…. if you can afford it.  But if you could afford to pay it, you probably would have already.  Nevertheless, walk through a little exercise before you resolve to take this option.

Start by making a budget and determine what you have available at the end of the month.  For example, if you bring home $3000 per month (after taxes and deductions) and have $2500 in living expenses (rent, food, car insurance, etc). you have $500 left, which you can make available to pay debt.

Next, you need to determine how much it will cost to pay off your debt in a 3 to 5-year period (or longer, if you’re willing but it is not recommended to exceed 5 years).  If you have $20,000 in credit card debt, with an average APR of 15%, then you’re in luck.  You can pay off your debt in 5 years with monthly payments of $475.

However, if you miss a payment or if you add new charges to your credit card accounts, it will take longer.  You will have to be ultra-vigilant every month for 5 years (60 months) and diligently make every payment on time.  If you have a financial set back, your entire plan could go down the drain.

In the above example, if our imaginary debtor has less income, or more debt, the numbers don’t work and it will not be possible to pay off the debt.  You can calculate your own payoff plan using a simple calculate like the one provided by ( )

PROS     You avoid negative reporting on your credit history; No involvement of the court

CONS     It’s risky (one misstep and your plan is derailed); It’s not affordable for most people


This is the most common alternative that people ask me about.  It’s also the option I like the least.  It has the most risk but it still requires you to pay most (if not all) of your debt.

First, it’s important to understand the difference between debt settlement and debt consolidation.  Settling your debt requires a voluntary agreement with your creditors (each one, individually) whereby you pay less than what you owe (sometimes in a lump sum, or with multiple payments over a short period).  However, creditors are not usually inclined to negotiate if you’re steadily making minimum payments (that’s how creditors profit the most).   So you’ll likely need to default before you can negotiate – miss three or four payments, and now the creditor is looking to take what (they think) they can get.  This is risky, however, because during this time creditors can sue you in court, obtain a judgment, and forcibly collect directly from your wages and/or bank accounts.  If you have more than a handful of creditors, you are also faced with the tedious task of contacting and negotiating with each one, separately.  If you settle some, but cannot settle others, or if you settle some too high, you may be unable to afford all of the various payments and you’re left with chaos (and debt).  Finally, any amount of debt that is forgiven by the creditor may be converted to taxable income.  You have now taken unsecured and easily discharged debt and converted it to not-so-easily discharged debt (and let’s face it, no one wants to be indebted to the IRS).

Note, there are many debt settlement agencies that can assist you in these settlement negotiations, and many will even accept your payment on behalf of the creditors (making payments for you).  However, many of these agencies are less than reputable and often charge multiple layers of fees that serve only to increase your payment plan, or result in a longer payoff period.

Debt consolidation, on the other hand, is taking on a new debt, which is immediately used to pay off your existing debt, in one lump.  This provides you with the ease of making a single payment, with one applicable interest rate and therefore tends to be easier and more manageable than debt settlement.  If you’ve already defaulted on  your exiting debt, however, it is unlikely that a new creditor will agree to lend you money.  Either way, you have to be careful.  Many of these loans carry very high interest rates and exorbitant penalties.  Also beware of using home equity lines of credit to pay off credit cards.  Credit cards are more easily negotiated, and easily dischargeable in bankruptcy.  Home equity loans are secured by your home or other real estate, and if you default, your home is now in danger of being foreclosed.

PROS    You can pay off your debt with a single monthly payment; you may receive some debt forgiveness

CONS     Negative credit reporting is still possible; you risk lawsuits, judgments and wage garnishments; costly (and often confusing) fee structures; tax consequences can follow


Eligible individuals can eliminate 100% of unsecured, non-priority debt in as little as 120 days.  That would include credit cards, personal loans, medical bills and just about anything other than student loans, alimony/child support and (some) taxes.  This is accomplished through Chapter 7.

Individuals who do not qualify for chapter 7 can enter a court approved and monitored payment plan.  The payment plan is generally calculated based on what you can afford, and will not exceed 5 years.  You may be required to offer a payment plan if your income is above the “mean” or if you have more than allowable equity in property.  Although this option is similar to debt settlement, there are many advantages.  For one, you are protected by federal law during your bankruptcy which means creditors cannot sue, garnish wages or take other collection actions while the payment plan is being negotiated.  Additionally, creditors do not have to agree to the payment plan – the court can order them to accept the plan if it otherwise meets legal requirements.  Finally, even if you only pay a fraction of your debt, there are no tax consequences as with an out-of-court settlement.

PROS  Fast and easy; pay as little as $0 on credit cards, personal loans, medical bills and most other collections; court-mandated protection from lawsuits, judgments and wage garnishments; no need to negotiate with each individual creditor; exemption from tax consequences.

CONS  Negative credit reporting; may not be an option for people employed in the financial industry


Before you make a decision on how to resolve your debt this year, consider all of your alternatives and keep these principles in mind: (1) seek expert advice from reputable sources (and no, your friends and family are not reputable sources); (2) do not over-extend yourself when committing to a payment plan; (3) read, read, read all documents before you sign anything and ask questions (make sure you understand the process and fee structure before you agree;  and (4) be realistic (if it sounds too good to be true, it probably is).

Still unsure about Bankruptcy?  Read through many frequently asked questions in one of my earlier posts: 

Dispel all of your bad notions about Bankruptcy!  Read Bankruptcy Myths Debunked! in one of my earlier posts:




Call: (908) 353-6700    Text: (908) 266-4843    E-Mail

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