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Question for the Money Doctors

Question submitted on Apr 20, 2011.

Question

what is the best way to to begin to start paying down credit card debt in the amount of $13,500.00? is there a right and wrong way to do this, I want this debt gone!

Answer

Starting with the basics, you can potentially sell assets/investments to pay down debt, or pay down the debt over time out of cash flow.  I'll assume for now that you don't hold any assets/investments that can easily be sold to pay down the debt.  Thus, you have to try to find a way to pay down the debt from your existing sources if income (i.e., salary).  One strategy is to really look at expenses and cut back on any expenses that are "discretionary."  This would obviously free up cash to pay down the debt.  Some people are successful in paying down the debt first when it comes to budgeting, therefore making sure the debt is paid before spending money on things like eating out or entertainment.  If cutting back on expenses can't get you there, it could make sense to temporarily halt contributions to a 401(k) if in fact you are doing so.  I don't like cutting back on your retirement savings, but if you have high interest debt it could make sense to get that paid off and then restart your retirement savings.  Also, check to see if there are lower-cost credit cards available that would accept a balance transfer.  This could save you some interest cost while you are paying down the balance.

Take advantage of any opportunities to make more income.  This may not be possible, but temporary employment, 2nd job, etc. to bring in more income would obviously let you payd down the debt more quickly.

Two other thoughts:  First, come up with a PLAN to pay off the debt and STICK TO IT.  Figure out how much you need to cut back on other expenses to get the debt paid off over some reasonable period of time (12-24 months?).  You need to be disciplined about this...stick to the plan.  Second, avoid running up the credit card debt again once it's paid off (and as you are paying it off).  Emergencies happen, but don't use the credit card for luxury/discretionary items or you will end up back in the same situation.


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