Pay it down now

The Washington Post Sunday - - BUSINESS - MICHELLE SIN­GLE­TARY

Some real talk for those of you who are again car­ry­ing credit card debt into the new year.

As one year ends and an­other be­gins, peo­ple be­gin to as­sess how deep in debt they are. Of par­tic­u­lar con­cern is tack­ling credit card debt. The fol­low­ing is a tran­script of some of the credit card ques­tions I re­ceived dur­ing my on­line chats in 2010:

Q: I have been no­ti­fied that I will no longer be with the com­pany due to the econ­omy. I have never been with­out a job, and I am scared what’s go­ing to hap­pen, es­pe­cially when I have two chil­dren in col­lege. Do you think it’s wise to use the money in my 401(k) to pay off my credit card debt?

A: I’m so sorry about your job loss. It just breaks my heart to hear about so many peo­ple los­ing their jobs. I know you want to do the re­spon­si­ble thing and pay your credit card bills, but don’t use your re­tire­ment money to do it. The penal­ties are too great if you are younger than 591/ You will have to pay a 10 per­cent penalty for early with­drawal plus taxes on the money. To get by, take small jobs, get a room­mate and sell some stuff. Do what you have to do to avoid cash­ing out your re­tire­ment.

I’ve been pay­ing down my credit card debt steadily the past 18 months and have made good progress, but I still have far to go to pay off $19,000. I was won­der­ing if it would make sense to re­fi­nance my home mort­gage to ac­cess the eq­uity (I’ve owned my condo for six years, and it has ap­pre­ci­ated in value). I would use the money to pay off the debt. Or should I keep mak­ing monthly pay­ments of $500 for the next four or five years?

Don’t use debt or a home eq­uity loan to pay down your credit card debt.

Keep do­ing what you are do­ing. You don’t want to ex­change un­se­cured debt (the credit card debt) for se­cured debt (home eq­uity loan).

You are on the right path; stick to it. And if you want to speed things up, keep look­ing at your bud­get to find places to cut ex­penses, or take on some ex­tra work or sell some things.

My hus­band and I think dif­fer­ently. He feels that un­til our debt is com­pletely paid, we shouldn’t go any­where. Our debt con­sists of a mort­gage of $90,000, a school loan of $25,000 and one credit card of $9,000. It will take a life­time to pay it

off. I’m fo­cused on pay­ing off the credit card with the in­come from my sec­ond job. What’s your take on va­ca­tions when you have debt?

How about a com­pro­mise you both may be able to live with?

How about you don’t take a vacation (with lots of ex­penses, etc.) un­til you have at least paid off the $9,000 in credit card debt?

I think it’s per­fectly okay to take a fam­ily vacation if you have mort­gage debt. If you don’t, you are right, 20 or 30 years will go by be­fore you en­joy the fruits of your hard work.

I have only mort­gage debt, and we take a fam­ily vacation ev­ery year for two weeks.

As for the stu­dent loan debt, why not set up price points so when you get it down to cer­tain lev­els you treat your­self to fam­ily va­ca­tions? This way, you both get what you want and stay on track for get­ting rid of your con­sumer debt.

I re­ally don’t un­der­stand the ram­i­fi­ca­tions of the new credit card laws. I have a $5,000 bal­ance on a card — my only card. I’m try­ing to pay it off as quickly as pos­si­ble. Can they change my in­ter­est rate? It’s al­ready at 19 per­cent.

The Credit Card Ac­count­abil­ity Re­spon­si­bil­ity and Dis­clo­sure (CARD) Act put in place some new pro­tec­tions. One of the changes that be­came ef­fec­tive in 2010 pro­tects con­sumers from un­ex­pected in­creases in credit card in­ter­est rates. Credit card is­suers can’t just raise your rate for just any rea­son. Gen­er­ally your rate can only be raised if you are more than 60 days late. Even if you do pay late, the com­pany can’t raise the in­ter­est rate on ex­ist­ing bal­ances.

So here’s my ad­vice: Take the one credit card out of your wal­let, if you haven’t al­ready. Don’t use it un­til you pay off all that $5,000. Then go­ing for­ward in the new year, make a res­o­lu­tion that you won’t charge more than you can pay off ev­ery month. Read­ers can write to Michelle Sin­gle­tary c/o The Washington Post, 1150 15th St. NW, Washington, D.C. 20071. Her e-mail ad­dress is sin­gle­tarym@wash­ Com­ments and ques­tions are wel­come, but due to the vol­ume of mail, per­sonal re­sponses may not be pos­si­ble. Please also note com­ments or ques­tions may be used in a fu­ture col­umn, with the writer’s name, un­less a spe­cific request to do oth­er­wise is in­di­cated.

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