Shortcut Navigation:

Question for the Money Doctors

Question submitted on Sep 20, 2012.


What is the best way to pay off large amount of credit card debt?


Here are some steps to manage your debt.

1. Summarize all your debt - creditor, amount due, minimum payment, interest rate, and due date.

2. Contact all your credit card companies to see if you can reduce the interest rates. At various times, the credit card companies would have promotions so keep an eye out for them. Take advantage of the lower interest rates. When the interest rates are lower, more of your payment goes towards paying down the debt.

3. Contact all your credit card companies to ask for a freeze on the account. This means you can no longer use the card or add addtional amounts to it. Some credit card companies may lock you into a lower interest rate and stop charging fees, etc. If you can work out a payment plan to pay it off within 60 months, they will work with you.

4. If you want to settle with the credit card companies, you can negotiate a settlement to close the balances. The amount of the settlement will vary depending on your circumstances. Please note if you do this, a notation will be made on your credit report showing the debt is settled for less than the balance and will adversely affect your credit rating. Also, the bank will issue a 1099-C for the amount of debt forgiven. This amount may or may not be taxable depending on your situation. Please contact a CPA/PFS familiar with these issues to see this will impact you. This strategy should be done very carefully. You can find a CPA/PFS near you by visiting

5. Pay the minimum amounts on the lower interest rate balances and focus on paying off the high interest rate balances as soon as possible. Once you pay off some of the balances, you can send more money to the remaining balances. You will be amazed at how effective this is. Set a goal and don''t add to your debt until you have this under control.

6. Increase your cashflow - find another job, start a business, improve your skills so you can get raises and promotions, get a second job, etc. Devote this addtional income to debt reduction. If you get a bonus or tax refund check, use it to pay off debt.

Once you pay off your debt and have it under control, you will feel much better. Paying down debt is a guaranteed risk free rate of return. The amounts charged by the banks are certainly more than the interest you can earn on your savings accounts right now.

Good luck!

For additional information visit