Editorial Policy

What is the Best Credit Card Debt Battle Plan?

Erica Sandberg

September 19, 2012

QDear Erica,

How about this debt payoff strategy? Check the advertisements that come with your credit card statement. Most of the time, you can pay off the other cards with the one that has the lowest interest rate. Cut up the ones you’ve paid off. Stop using your cards altogether if you can. If you need a card, apply, for a new one with a small limit — maybe $500. That should cover any emergency that may come up. — Daiki

AHi Daiki,

I appreciate you writing and offering advice about how to use the credit system advantageously! And although your letter is not in typical question form, it is a terrific one to respond to. For the most part, I agree with the suggestions that you make. They’re quite sound. Therefore, you, Daiki, will be my guest columnist this week.

Let’s go through your advice step by step. Assuming you have debt to delete:Ask Erica

1. Consider a balance transfer. If you have a high rate of interest on credit card debt that you’re having trouble paying off (and your current company won’t lower it), transferring the balance to a card with a lower rate can be smart.

Be aware of all current offers. You’ll find plenty of advertisements for a wide variety of credit and charge cards in your mail box, in newspapers and magazines, online, and on TV and radio. You won’t see them in your statements, though, unless your issuer is offering you a better APR than you have now. That is unlikely if you have fallen behind on payments or if you’ve been at or near your credit limit for a few months. Mind that balance transfers aren’t free. There are fees involved, so run the numbers to determine if the cost to move to a new card makes sense.

2. Don’t add to the paid-off account. A card that suddenly sports a zero balance after a transfer can be awfully tempting to turn to when running short on cash. Don’t do it, though. Remember that your intention is to be debt free, not live perpetually in arrears. Destroying the actual cards can act as a deterrent when physically out at the stores (swiping plastic pieces won’t work, after all), but it is still possible to use an active account for Internet and telephone shopping. Consequently, unless you’ve canceled the account entirely, you must still practice resistance. If you don’t have the cash to pay your bill in full, don’t buy it.

3. Keep a “crisis card” handy. Besides being perfect for normal purchases that you’re able to cover immediately, credit cards can be great for expensive emergencies. Most people don’t need tens of thousands of dollars available to them, but do make sure the limit isn’t too limiting. Think about what you may need to buy on the fly. Perhaps it’s a new car transmission or a cross-country flight to transport you to the side of an ailing relative. The amount you charge should be no more than half of what’s available. This way, you won’t hurt your credit score. So, if you project a potential $1,000 cost, a $2,000 limit would be fine. And if you’re ever in that position, don’t let the debt linger, or it will become the problem rather than solve it.

The preceding three points are based on the ones you made, Daiki, but I’ll include one more that fits nicely with your recommendations: After you’ve paid down your balances, start to use credit well from that moment forward. Don’t fear credit cards, but do reject the debt you can get into with them.

Got a question for Erica? Send her an email.