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Paying Off Credit Cards

10/23/2013

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Ask Kat Advice Column
After many years of working in various disciplines and industry sectors, none as a therapist, Kat is willing to tackle life's biggest (and smallest) personal questions. Email Kat your questions. 
_________________________

Kat,

I keep going in circles with paying off my debt and it is keeping me from being able to save. What’s the best approach to take so that I can finally save and be able to invest in a house?

-Tinley 

**************

Hey Tinley,

A college I went to allowed tables all over campus that enticed students to sign up for credit cards. I fell for the free swag and racked up debt that messed up my credit. It took me many years to get my number out of the hole. It was hard to pay off credit card debt when trying to save, but it was the best action to take in the long run. Get rid of credit card debt as fast as you can. It is the fastest way to save money, as you no longer are paying interest, and most likely pretty high interest rates at that.

After credit card debt is paid, try your best to keep balances off of them and if you do add a balance, pay if off in full before the next payment is due. Yes, that means living within your means. This is only temporary, once they are paid off you more disposable income.

By the way, if you do payoff a credit card and plan not to use it except in emergencies, contact the company and tell them. They will stop any fees, such as annual fees, until you use the card. Otherwise you may be in for a surprise three months down the road when you get a statement with a balance for a card you haven’t used in months.

For loans, I find paying a little bit more on every payment can help reduce the principle, thereby reducing the overall amount of interest paid. This would pertain to most, but not all, car loans, mortgages, student loans, etc. The debt has to be paid eventually, and the sooner it can be gone, the better. The easiest way to put money back in your pocket is to eliminate or reduce interest payments overall. Paying interest is wasted money. Sometimes we have to pay interest and that’s ok, but the amount that’s paid is the kicker. The less interest to pay, the less you’re wasting.

Reducing the amount of interest, you pay monthly is a long-term investment to your financial well-being because it heals our credit scores, which lower interest rates with future loans, when needed. Thereby saving money in future too.

Eventually we will wean ourselves into living within our means and not needing credit (emergencies do not count). The next goal then is to save three months of expenses… that’s a whole other beast!

Good luck!

-Kat
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    Thought Notebook is many things, but starts as the output of the human mind thinking about our encounters and recording of responses. An exercise in reflection.

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