Q: Iâ€™ve decided I really want to pay off the $13,000 in debt I have on my credit card. Iâ€™d like to start saving for a home and for my retirement and for the new car Iâ€™ll probably need to buy sooner rather than later.
I figure the best thing to do is to find a new credit card, since the one I have has very high interest. Each month, I pay $277 on my debt, of which $219 goes toward interest.
I have been looking for credit cards with zero percent financing on transferred balances. My goal is to get some breathing room on the finance charges. Iâ€™m not going to charge anything new on the card.
Iâ€™m worried that I wonâ€™t be able to get the entire debt paid off within the zero percent financing period and I havenâ€™t found a â€œfor lifeâ€ offer on transferred balances. What should I do?
A: I think itâ€™s great that youâ€™ve decided to pay off this debt. Right now, youâ€™re only putting about $58 per month toward your balance. At that rate, itâ€™ll take you more than 15 years to get rid of it. Itâ€™s time for action.
If you go to CardWeb.com or CardRatings.com, you can find plenty of credit cards that offer 0 percent for a certain number of months. But most of the cards will eventually bump up to 6 to 9 percent interest or even more, and most of those are variable rates. As short-term interest rates goes up, the interest rates on these cards will float higher as well.
I did a quick check at CardWeb.com, and I didnâ€™t see any “for life” offers of zero percent on transferred balances. That means you have a limited amount of time to make use of your zero percent interest.
According to the CardRatings.com calculator, if you continue to pay $277 per month on a card with no interest payments, youâ€™ll still need 47 months, or nearly 4 years, to pay off your debt.
If you’re serious about paying off this balance over the next 9 to 12 months, or when your zero percent financing offer expires, you should think about getting a second job. If you could put $1,100 toward your debt each month, youâ€™ll have your $13,000 in credit card debt paid off in a year.
Once the debt is gone, you might want to stay with your second job to build up an emergency cushion of $1,100 per month (what you had hopefully gotten used to paying the credit card company) which can be deposited into a savings account.
Or, perhaps you can go back to paying yourself $277 per month (or perhaps you can boost that to $500). Either way, youâ€™ll be putting away money that you can use for a down payment on a home or for your retirement.
While taking a second job isn’t that much fun, the relief you’ll feel at being out of debt will be worth the short-term pain.