The Debt Survival Kit - Chapter 5 excerpt, part 3

Christopher Scully 33

transfers from your checking account to your settlement account. Even better—if you have direct deposit, have the funds taken from your paycheck and deposited into your settlement account. It would be ideal if the account you set up for your settlement account also has a bill payment option. Again, deposits to your settlement account should be easy, while withdrawals should be inconvenient. It doesn’t matter what bank you put your money in, just try to get an account with features similar to those described above.

          The next question most people ask about financing settlements is, “How much money will I need per month?” This is a difficult question to answer because the answer depends on your particular situation and when you want to be out of debt. Though I can’t give a specific answer, I can give a couple of methods for figuring out how much you should be putting toward your settlements per month.

          You can calculate it based on how long you want the whole process to take. The first step is to figure out how long (in months) you want your entire settlement program to take. From there you can calculate how much you need to put into your settlement account each month to achieve that. The formula is this:

          This calculation assumes two things. First, your balances will go up over the time you’re working on settling the accounts due tointerest and fees. Second, you will settle your accounts for 50 percent of the increased balance due at the time of negotiations or less. For example, if you have $8,500 in debt and you want to be done in 36 months, the calculation would go this way: $8,500 X 60% = $5,100. $5,100 ÷ 36 = $141.67. You would need to put $141.67 per month into your settlement account in order to settle your debt in 36 months. If you can’t afford $141.67, then you would need to lengthen your time estimate in order to bring the required amount down to something you can afford.

          You can approach the calculation from a different angle by using the amount you feel you can comfortably afford to put into your settlement account to figure out how long it will take you to settle all your debts. The formula for this is similar to the first one.