Paying down your credit
cards: A 10-step plan
I have $17,000 in credit card debt
on two cards; the interest rates are 8.5 percent and 9.9 percent. I pay between
$700 and $800 a month, which is more than the minimum payments. I see the balance
declining, but I wonder if there's a better way to pay these off? I'd love to
consolidate to reduce my monthly payment, but I'm not interested in a home equity
loan. Any good ideas? -- Brad
You are wise to leave your home equity alone. Replacing credit
card debt with a home equity loan doesn't solve the debt problem: A debt by any
other name is still a debt.
Consolidating the debt so your monthly
payments are lower is also a bad idea. The longer you string out the payments,
the longer it will take to pay off the balances and the more you'll be shelling
out for interest.
Credit card debt is not something you want
to hang on to. Your rates are relatively low, but that could change in a minute.
By law, card companies need to give only a scant 15 days' notice before changing
your "fixed" card rate. Read more in the Diva's "Credit
card company tactics."
If home equity and consolidation
loans are not the answer, what should you do? Make huge monthly payments on the
debts to pay them off as quickly as possible.
It won't be
easy. To help you do it, here are 10 steps to help you free up cash with temporary
lifestyle changes and use that money most effectively:
spending money on nonessentials. No new clothing, shoes, jewelry, expensive
gifts, CDs or other toys until you pay off the debts.
using plastic. Resist temptation by making your credit cards inconvenient
to use. Try freezing them in a block of ice.
a moratorium on travel and expensive entertainment. The library and local
forest preserve provide free entertainment. When you make the debt disappear,
Disneyland will still be there.
telephone expenses. Make fewer long-distance calls and get rid of expensive
- Spend less on groceries.
Try meatless meals and generic brands. Shop with a list.
less eating out. Until you shed your debt, shun fancy restaurants -- even
on birthdays and anniversaries.
everything. Use less water. Drive less. Turn off lights. Lower your thermostat
in winter and raise it in summer.
in as much cash as you can. Work overtime, moonlight and sell stuff you
- Keep busy so you're not
tempted to spend. That overtime will take up part of your free time. So
will going to the gym more frequently and taking your children to the playground.
off the highest-rate card first. Debt gets paid down faster when you retire
the debts in order, from highest interest rate to lowest. In your case, make the
minimum payment on the 8.5 percent credit card debt each month; use all of the
extra cash you have, including the money from the belt-tightening, raises, bonuses,
tax refunds and other sources to pay down the 9.9 percent card to zero. Then switch
to the 8.5 percent card.
When you pay off both
cards, retire the one with the highest interest rate and keep the other on (or
in) ice. Use it only for emergencies. Make sure you read the Diva's "Closing
your credit card accounts" for the steps you need to take to get rid
of your credit card the smart way.