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One more time: The best paths to help you wipe out credit card debt

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By Michelle Singletary
Washington Post Staff Writer
Saturday, January 1, 2011; 5:37 PM

As one year ends and another begins, people begin to assess how deep in debt they are.

Of particular concern is tackling credit card debt. The following is a transcript of some of the credit card questions I received during my online chats in 2010:

Q: I have been notified that I will no longer be with the company due to the economy. I have never been without a job, and I am scared what's going to happen, especially when I have two children in college. Do you think it's wise to use the money in my 401(k) to pay off my credit card debt?

A: I'm so sorry about your job loss. It just breaks my heart to hear about so many people losing their jobs. I know you want to do the responsible thing and pay your credit card bills, but don't use your retirement money to do it. The penalties are too great if you are younger than 59 1/2. You will have to pay a 10 percent penalty for early withdrawal plus taxes on the money. To get by, take small jobs, get a roommate and sell some stuff. Do what you have to do to avoid cashing out your retirement.

I've been paying down my credit card debt steadily the past 18 months and have made good progress, but I still have far to go to pay off $19,000. I was wondering if it would make sense to refinance my home mortgage to access the equity (I've owned my condo for six years, and it has appreciated in value). I would use the money to pay off the debt. Or should I keep making monthly payments of $500 for the next four or five years?

Don't use debt or a home equity loan to pay down your credit card debt.

Keep doing what you are doing. You don't want to exchange unsecured debt (the credit card debt) for secured debt (home equity loan).

You are on the right path; stick to it. And if you want to speed things up, keep looking at your budget to find places to cut expenses, or take on some extra work or sell some things.

My husband and I think differently. He feels that until our debt is completely paid, we shouldn't go anywhere. Our debt consists of a mortgage of $90,000, a school loan of $25,000 and one credit card of $9,000. It will take a lifetime to pay it all off. I'm focused on paying off the credit card with the income from my second job. What's your take on vacations when you have debt?

How about a compromise you both may be able to live with?

How about you don't take a vacation (with lots of expenses, etc.) until you have at least paid off the $9,000 in credit card debt?

I think it's perfectly OK to take a family vacation if you have mortgage debt. If you don't, you are right, 20 or 30 years will go by before you enjoy the fruits of your hard work.

I have only mortgage debt, and we take a family vacation every year for two weeks.

As for the student loan debt, why not set up price points so when you get it down to certain levels you treat yourself to family vacations? This way, you both get what you want and stay on track for getting rid of your consumer debt.

I really don't understand the ramifications of the new credit card laws. I have a $5,000 balance on a card - my only card. I'm trying to pay it off as quickly as possible. Can they change my interest rate? It's already at 19 percent.

The Credit Card Accountability Responsibility and Disclosure (CARD) Act put in place some new protections. One of the changes that became effective in 2010 protects consumers from unexpected increases in credit card interest rates. Credit card issuers can't just raise your rate for just any reason. Generally your rate can only be raised if you are more than 60 days late. Even if you do pay late, the company can't raise the interest rate on existing balances.

So here's my advice: Take the one credit card out of your wallet, if you haven't already. Don't use it until you pay off all that $5,000. Then going forward in the new year, make a resolution that you won't charge more than you can pay off every month.

Readers can write to Michelle Singletary c/o The Washington Post, 1150 15th St. N.W., Washington, D.C. 20071. Her e-mail address is singletarym@washpost.com.Comments and questions are welcome, but due to the volume of mail, personal responses may not be possible. Please also note comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.


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