Pay Off Credit Card Debt
REM #A728
By Ilyce R. Glink
Summary: A ThinkGlink reader has a considerable credit card debt and savings in the bank. Ilyce suggests paying off the debt and curb spending in the future.
Q: My wife and I have approximately $50,000 in credit card debt with interest
rates ranging from 9 percent to 29 percent. Our annual income is above $250,000.
We are maxing out our 401(k) plans at work and have another $100,000 in mutual funds and stock. Also, we have $280,000 in cash which came from an employment contract payout, and the taxes have already been paid on that cash.
I want to pay off our credit card debt. My wife says keep all the cash. What do you think?
A: I vote for dumping the credit card debt. There's no point in shelling out
the kind of interest you're paying when the cash you have on hand is only earning
4 percent in the bank (and on that money you pay tax, so you’re really
only pocketing about 2.5 percent).
You'll hardly make a dent in the cash you have on hand, and you won't be paying
out up to 29 percent interest. If you simply pay off the debt, and then start
to "repay" yourself with the savings, you'll save another $50,000
fairly quickly.
I do wonder why she is so attached to having that much cash sitting in a bank
account. Is she worried about going further into debt? Is she afraid the cash
will suddenly disappear? Or, is she secretly thinking about quitting her job,
and that cash is her cushion.
You and your wife should have a conversation about this soon.
In the meantime, you win this round. But going forward, I hope you and your
wife will both agree to live within your means. Piling on credit card debt isn't
a smart financial move, and I'd hate to see you whittle away your savings unnecessarily.
NOTE: This column is distributed by Real Estate Matters Syndicate, PO Box 366, Glencoe, Illinois, 60022. This column may not be resold, reprinted, resyndicated or redistributed without written permission from the publisher.
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