Judy

“Dear Steve,

Should I save the amount after paying off a credit card debt or pay down another.

Help please.

Judy”

The Answer:

Dear Judy,

You asked a great question and one that seems easy but has different valid and possible answers.

If you are digging yourself out of a debt hole the initial knee jerk reaction is to devote all your extra money to paying down the next card but I don’t think that is the smartest thing to do.

You see life is unpredictable and we never know what the next financial surprise will be. Unless you have access to some liquid cash to get in a hurry those unexpected expenses could wind right back up on the plastic, eroding any debt reduction progress you previously made.

I think the better approach is to buildup your savings account at the same time that you are trying to reduce the debt. I’m assuming that we are starting from a position that you have little to no savings to begin with.

I would suggest that after you pay off your first credit card debt that you either put the extra into a savings account for a few months to build some cushion or put half of the amount into your savings account each and every month from that point forward and use the remainder for additional debt reduction.

This approach of rolling your payments forward is know as the debt snowball approach. There are two basic theories to accelerating debt repayment. Those that are diligently organized find that extra money applied to the card with the highest interest rate makes the most mathematical sense. The the rest and majority of the population finds that it is more emotionally rewarding to focus on paying off and sending your extra payment to the card with the lowest balance. By knocking off accounts quickly you get a greater emotional boost to keep going. That’s the debt snowball approach, simplified.

Thanks for writing in.

Big Hug!

@GetOutOfDebtGuy

The Answer:

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Read the full article at GetOutOfDebt.org, click here: Judy Is Worried “Should I Save or Pay Off Credit Card?”

“Dear Steve,

I have piled up over $60k of credit card debt over the past couple of years. My gross income has been in the $55k range for the past two years. I am in a business where my income should continue to grow but with minimums around $1300 per month I’m very close to falling behind on these and/or my mortgage.

Do we have any viable alternatives other than bankruptcy?

Paul”

The Answer:

Dear Paul,

Actually you do have a number of options:

• Increase income.
• Reduce expenses.
• Increase income and reduce expenses at the same time.
• Use the debt snowball approach to pay down your debt while you can still afford the minimums.
• Do nothing and wait for the situation to explode. It might not sound like an option but doing nothing is a choice that many make.
• Look in to a debt management program and see if you can find some payment or interest relief there to reduce the time it will take you to get out of debt.
• If you have some liquid cash around you might want to do a lump-sum debt settlement to get rid of some of those debts.
• If you have equity, refinance the mortgage and take cash out to settle or pay off debts.
• If you are not running up cards anymore, consider asking a family member for a loan to pay off the debt and then repay the debt to them under more favorable terms.

If I knew more about your situation I might be able to be more specific. But regardless, the underlying issue that needs to be addressed is what caused or lead you to increase your debt so high on the credit cards? Until you answer that, getting out of debt is secondary. We have to plug the dam first before we start pumping out water.

Big Hug!

@GetOutOfDebtGuy

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Read the full article at GetOutOfDebt.org, click here: I’m Very Close to Falling Behind on My Bills. Do I Have any Options Other Than Bankruptcy? – Paul