Quick Answer: Getting out of $70,000 credit card debt requires weighing credit score impact against total costs. Paying $2,500 monthly at 20% interest takes 39 months and costs $95,000 total, while balance transfers require $6,000 monthly payments to avoid higher rates.
Question:
Dear Steve,
I have about $70,000 credit card debt. I finally got a reliable full-time job and could make about $2500 to $3000 monthly towards it, but the interest rates are killing me.
I’ve never had a late payment, and the only thing bad on my credit report is my debt ratio. I’m in my early 40’s.
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How can you help me and what is your suggestion?
Giselle
Answer:
Dear Giselle,
It is funny how such a simple question is so complicated.
If your credit score is the most important thing to you, then pay your debt off as fast as possible and in full.
If you pay $2,500 per month at an average of 20 percent interest on your accounts, it will take 39 months to pay off and cost about $95,000, with $25,000 of that being interest.
You could shop for a personal loan or find enough 0 percent balance transfer cards if you want lower interest rates. However, to pay it off at the lower transfer rate, you should expect to pay up to $2,000 in fees, and your monthly payment would be about $6,000 per month to clear your balance before you were hit with regular interest rates.
Applying for balance transfer cards or a personal loan can lower your credit score based on how many credit inquiries you make.
Paying back a big balance can cost you more than a million dollars in lost retirement savings. You should also factor in the future cost of paying off the debt. I want you to make an informed decision. Use my online calculator.
If you made three years of $2,500 a month payments and never put anything more towards your retirement, you’d have about $1,259.400.
Alternatively, if you are eligible for a Chapter 7 bankruptcy, you could legally eliminate all of your debt tax-free in about 90 days and for less than $2,000 in legal fees. In addition, you can rebuild your credit quickly afterward.
You could settle your debt, but that would require defaulting and leave a negative mark on your credit for seven years. In addition, the forgiven debt might be taxable.
See, what I mean, it can be a complicated decision.
Because of this, I would strongly advise talking to my debt coach friend Damon Day and have a conversation about what your current and future financial goals are and let him craft a customized solution that best fits you.
Talking to a debt relief salesperson can inadvertently cost you millions of future dollars by making the wrong choice. Shocker – the sales commission debt relief salesperson will try to sell you their product seemingly regardless if it is right for you. Many salespeople just don’t know better.
Please come back and comment below and let me know what you decide to do.
Know Your Rights: If a debt collector is contacting you, you have legal protections. See the complete list of FDCPA violations collectors commit most often. Use the free Debt Validation Letter Generator to demand proof of the debt, or check this collector’s complaint history with the Scam-O-Meter.
Dealing With Debt? Before you pay a collector, understand all your debt relief options — including ones the collector won’t tell you about. If the debt feels unmanageable, take the 2-minute bankruptcy quiz to see if the math favors a fresh start. Federal Reserve research shows filers recover faster than those who don’t file.
Asked question about how to best get out of debt.
I answered your question. The answer is more complicated than you might expect. Please let me know what you decide to do by commenting below.