Pay Off Credit Card Debt

Added November 4, 2001 by Ilyce R. Glink

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Summary: You'll never get anywhere in life with credit card debt. Pay off your credit cards before making any large purchase like a house. Only charge what you can afford to pay off at the end of each month.

Q: My wife and I have around $15k of credit card debt, $4k saved, and $2k/month to add to savings every month. Currently renting ($1k/month) and lease ends 3/31/02.

Should we:

Pay off credit cards, then save for a year (keep renting), then buy a house we REALLY like.
Save all $ for home purchase at the end of current lease (keeping house pmt. close to current rent) and use monthly savings to pay off credit cards after home purchase.
Keep renting forever and use credit cards to invest in some primo land in Florida ! ! !

We both have great credit (scores in low 700's).

A: You'll never get anywhere in life with credit card debt. Right now, you're losing money because your $4,000 in savings is probably earning 2 percent per year and you're paying 16% per year on your credit cards.

Pay off your credit card debt first (with $3,000 of your savings and then the $2,000 per month you have to put toward savings). In six months, you'll be out of debt. Then, you should save what you can toward the purchase of a first home. I'd aim to buy something by the time your lease is up. You can get a home loan with just 3 percent down. Try to do that.

And in the future, never charge anything that you can't pay off at the end of the month. It's much better to wait and pay cash than to live off of your credit cards. Plus, you'll sleep better at night.

Published: Nov 4, 2001

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