Question:
Dear Steve,
I need direction and help! I have approximately $25,000 in credit card debt. I have been able to Balance Transfer to 0% for years in trying to consistently pay down the debt over time, but it is slow, grueling and when something comes up, I set myself back years of progress.
I have 2 older cars that are paid off. Currently all, but one of my Credit Cards are at a 0% intro rate for Balance Transfers.
My credit is good, 680 range, we have a house we will be in for long term. I really need to figure out how to get this debt cut drastically. Thank you for your assistance in advance.
How can I cut/consolidate the $25k of credit card debt?
Kevin
Answer:
Dear Kevin,
Ah yes, the old 0% balance transfer trick. I think we should look closely at what a 0% balance transfer really is.
In an effort to lure customers away from another credit card, card companies use all sorts of marketing efforts. One of those is the 0% balance transfer.
With the transfer there may be a fee charged, usually a percentage of the balance. But the two biggest potholes with the balance transfer trick is you are not making any progress in paying down the debt and you may always get stuck on a high interest rate card if you are not able to transfer it again.
So let’s look at possible ways to reduce the debt. The most obvious is to actually pay the debt off. But the best way to do this is to transfer the debt and then pay it off in full before the introductory rate expires. If you can’t then you should expect to pay interest on the balance due.
It sounds to me that things have been tight and you’ve been limping along. A 680 credit score is okay but it’s not fabulous. You can see why your score is being dragged down and what you can do about it by using the free service from Credit Karma.
We are now left with some other solutions. When facing debt that needs to be eliminated you can increase income, reduce expenses, or intervene with the debt.
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If you were going to intervene with the debt then something like a credit counseling program or maybe debt settlement is a solution. Both of those approaches would leave you have to make some sort of payment to reduce the debt.
So that comes down to the only legal solution you have to get a fresh start, bankruptcy. You should read Those That File Bankruptcy Do Better Than Those That Don’t to get a better idea of the reality of bankruptcy today.
Bankruptcy would allow you to get a fresh start, deal with any other debts you might have, and hopefully make a lot of sense by getting you back into a position where you are saving again instead of limping along. And that’s what is causing you to lose all the progress you make trying to pay the card down. When something comes up it sounds like you have to turn back to the cards and that slides you backwards.
So based on what you’ve shared, and considering it sounds like you are up against a wall but just not able to break free, I would ask you to first consult with a local bankruptcy attorney and then report back in the comments below.
Depending on the value of the cars and where you live, they might create an issue in bankruptcy. The only way to know for sure is to talk to the attorney.
But knowing you have no car payments, are unable to pay off this card, and seem to have no savings then I think considering drastic action is not unwise.
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