Opinion: How to pay off credit card debt

The headline of a personal finance column on the Washington Post website posed a simple question: “Should you use your retirement money to pay off your credit card debt?”

Here’s the simple answer: Absolutely not, unless you want to work full-time or part-time until age 70 because you haven’t set aside enough money for your retirement.

Michelle Singletary, the Post’s personal finance columnist, was a little more charitable with her response.

“Here’s when you should withdraw funds from your retirement account if you’re not already retired: when there’s no other choice,” she wrote. “You have exhausted all your non-retirement savings and exhausted other non-debt related sources of help.”

The subject came up when a 63-year-old Californian asked Singletary for advice. She wanted to eliminate her credit card debt of $13,000 (at an annual interest rate of 22%) as well as another $7,000 in personal loans.

The woman earns $121,000 a year and had already borrowed $10,000 from her retirement fund. She also gives her adult daughter, who has had health issues, $500 a month for medical expenses.

Singletary noted that borrowing money from a retirement fund is usually a better option than withdrawing it, because you’re paying the fund back over time, plus interest charges.

She suggested that the woman set aside $3,000 of the retirement fund loan as a cash cushion, then use the rest of the money to pay off the $7,000 in personal loans.

“I know his credit card debt is more expensive,” Singletary added. “But when getting out of debt, tackling smaller debts and writing them off often motivates people to become more aggressive in paying down their balances.”

The next step was for the woman to review a year’s account statements, using a highlighter to mark payments that could be reduced or eliminated.

It was a big help. The woman estimated she could save $150 a month on groceries, up to $100 a month on her cell phone bill and $40 by eliminating some TV streaming services.

Singletary also suggested that she call her credit card company to see if they’re willing to lower her interest rate or work with them to put a plan in place that could expedite the payment of that debt.

This story is common. Singletary wrote that with inflation at high levels, people are more often using their credit cards to defer bills. A recent report from the Federal Reserve on household debt indicates that credit card balances have increased by $46 billion since the first quarter of this year. This means that the interest charges also increase.

The fact is that help is available for people with large credit card debts. Singletary recommended the Free Financial Coaching tab on AmericaSaves.org; and nfcc.org, the National Foundation for Credit Counseling.

“If you assume that you shouldn’t touch this precious sum of money intended to see you through your retirement years, you may find that you have other options as well,” he said. she concluded. Which is very good advice.

—Jack Ryan, McComb Enterprise-Journal

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