2-Minute Money Manager: What’s the Best Way to Pay Down Debt?

Woman looking at her debts
Photo by Leszek Glasner / Shutterstock.com

Welcome to the “2-Minute Money Manager,” a short video feature answering money questions submitted by readers and viewers.

Today’s question is about the best way to pay off credit card debt. This is an important topic for millions of Americans. Your financial future depends on getting the answer to this question right.

Watch the following video, and you’ll pick up some valuable info. Or, if you prefer, scroll down to read the full transcript and find out what I said.

You also can learn how to send in a question of your own below.

For more information, check out “9 Tips for Finding Good, Cheap Debt Help” and “2-Minute Money Manager: Should I Use a Credit Counselor for Debt Help?” You can also go to the search at the top of this page, put in the word “debt” and find plenty of information on just about everything relating to this topic.

And if you need anything from a better credit card to a mortgage, be sure and visit our Solutions Center.

Got a question of your own to ask? Scroll down past the transcript.

Don’t want to watch? Here’s what I said in the video

Hello, and welcome to your “2-Minute Money Manager.” I’m your host, Stacy Johnson, and this answer is brought to you by MoneyTalksNews.com, serving up the best in personal finance news and advice since 1991.

Today’s question comes to us from Jodie:

What’s the best way to pay off credit cards? I have extra cash. I did use some of it on paying down debt, and I’m being super frugal right now — budgeting, not using credit cards or buying things besides necessities. A huge chunk of my credit card debt is gone, but the balance left is $8,500. Yikes! What is my best option to tackle my debt on the existing credit card balance: One, transfer to a zero interest card. Two, pay more of my money from savings. Three, use a home equity line of credit.

OK, Jodie, let’s look at each of these three options:

1. Transferring to a zero percent interest credit card

This can be a great idea, as long as you’ve got all of your spending leaks plugged, so you know you’re going to be able to pay that debt off during the zero percent interest window.

When you transfer a balance to a zero percent credit card, you’ll typically have the zero percent terms for anywhere from a year to two years, with 18 months being the average.

You can find these cards many places, including MoneyTalksNews.com. Go to our Solutions Center, click on the credit card link, and you’ll find some zero-interest credit cards.

Just be sure you can pay them off in the time allotted. Also, be aware there may be a transfer fee, which is a fee to transfer a balance from a high-interest credit card to that zero-interest credit card. Obviously, if there’s a fee, you have to take that into account, because that’s essentially additional interest.

You can find zero-interest credit cards without transfer fees, but there aren’t many. Still, if you can do a fee-free transfer, get a zero percent interest rate and know you’re going to be able to pay it off in the time allotted, these can be a good idea.

2. Using savings to pay off debt

There are some financial gurus out there who will say, “Oh, no: You have to keep a huge emergency fund.”

Everyone should definitely have an emergency fund, but not everyone’s situation is the same.

If you’ve been working at the DMV for 35 years, you’re probably not about to get laid off. Your emergency fund may not need to be as big as other people’s. If your job is stable and you know you’re going to keep it, I’m not suggesting you spend your emergency fund down to zero. But if you’re paying 18 percent interest on a credit card and earning 1 percent on your savings, there’s nothing wrong with using savings to pay debts.

So, if you’re not worried about losing your job — and you know you’re going to have money coming in and keep some money in savings — go ahead and pay off that high-interest debt.

3. Using a home equity line of credit

Borrowing against your home can also be a decent idea, as long as you’ve got your spending leaks plugged.

Why do I keep saying, “As long as you’ve got your spending leaks plugged?” Because a lot of people use debt to finance a lifestyle they can’t afford. If you put your house up as collateral for a loan — which is what you’re doing when you get a home equity line of credit — you’re literally betting the roof over your head you’ll be able to pay it back.

There’s an expression in the credit counseling industry: “Buy a blouse, lose a house.” If you’re spending more than you’re making, fix the problem before you begin to consider this solution.

If you’ve gotten your spending under control, and you’re just trying to pay off your debt as quickly as possible, awesome. A home equity line of credit could have a lower interest rate than your existing credit card, so it could be a good idea. Just be aware of the fees and comparison shop.

And no matter what you do, don’t ever do anything until you know you’re going to be able to pay off that debt and not accumulate more. And if you need help with debt, find it!

Hope that answers your question, Jodie.

I’ll see you all right here next time!

Got a question you’d like answered?

You can ask a question simply by hitting “reply” to our email newsletter, just as you would with any email in your inbox. If you’re not subscribed, fix that right now by clicking here. It’s free, only takes a few seconds, and will get you valuable information every day!

The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.

About me

I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.

Got any words of wisdom you can offer on today’s question? Share your knowledge and experiences on our Facebook page. And if you find this information useful, please share it!

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
How to Stop Living Paycheck to Paycheck in 8 Steps
How to Stop Living Paycheck to Paycheck in 8 Steps

Is your paycheck gone the moment you get it? Here’s how to break that vicious cycle.

The Annuity Everyone Needs — and Anybody Can Get
The Annuity Everyone Needs — and Anybody Can Get

This simple strategy can put more money in your pocket during retirement.

How to Prepare Your Finances for Retirement in 7 Steps
How to Prepare Your Finances for Retirement in 7 Steps

Here is how to get your finances in shape for your golden years, one step at a time.

15 Purchases That Make Life Easier As You Age
15 Purchases That Make Life Easier As You Age

There are many products that can make getting older — or any time of life — a little easier.

How Much of My Social Security Can My Ex Take?
How Much of My Social Security Can My Ex Take?

A man wonders if his ex-wife will siphon away his Social Security benefit.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
10 Things Frugal People Never Buy
10 Things Frugal People Never Buy

If you’re a true tightwad, the mere thought of spending money on these items gives you the willies.

10 Useless Purchases You Need to Stop Making
10 Useless Purchases You Need to Stop Making

You might as well flush your money down the loo if you spend it on these things.

The 16 Cars Most Likely to Last 200,000 Miles
The 16 Cars Most Likely to Last 200,000 Miles

One automaker takes half the spots on a list of the longest-lasting vehicles.

7 Social Security Rules Everyone Should Know by Now
7 Social Security Rules Everyone Should Know by Now

Confusion over Social Security is a shame, considering how many of us will need this money badly.

9 Shopping Mistakes to Avoid at Costco
9 Shopping Mistakes to Avoid at Costco

Are you missing out on serious savings at your favorite warehouse club?

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

They don’t make coffee makers like this anymore.

7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

14 Things You Should Stop Buying in 2021
14 Things You Should Stop Buying in 2021

These convenient household products come with hidden costs that you might not have considered.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

Is Writing a Check Still Safe?
Is Writing a Check Still Safe?

Every time you pay by check, you hand your bank account numbers to a stranger.

6 Ways to Protect Your Retirement Accounts From Hackers
6 Ways to Protect Your Retirement Accounts From Hackers

Imagine having $245,000 stolen from your retirement account — and not being reimbursed.

8 Things You Should Replace to Improve Your Life Today
8 Things You Should Replace to Improve Your Life Today

Being frugal isn’t smart if you put off replacing these items.

This Is the Most Dependable Car Brand in the U.S.
This Is the Most Dependable Car Brand in the U.S.

This brand’s vehicles are least likely to give drivers repair headaches, according to J.D. Power.

7 Hidden Sections of Amazon Every Shopper Should Know
7 Hidden Sections of Amazon Every Shopper Should Know

These little-known departments of Amazon are gold mines for deal-seekers and impulse shoppers alike.

9 Millionaires and Billionaires With Surprisingly Frugal Habits
9 Millionaires and Billionaires With Surprisingly Frugal Habits

Some of the world’s richest women and men drive modest cars, clip coupons and love a bargain.

7 Income Tax Breaks That Retirees Often Overlook
7 Income Tax Breaks That Retirees Often Overlook

Did you realize all these tax credits and deductions exist — or that they apply to retirees?

7 Social Security Benefits You May Be Overlooking
7 Social Security Benefits You May Be Overlooking

There’s more to Social Security than retirement benefits.

13 Amazon Purchases We Are Loving Right Now
13 Amazon Purchases We Are Loving Right Now

These practical products make everyday life a little easier.

The 6 Best Investing Apps for Beginners
The 6 Best Investing Apps for Beginners

If you’re looking to ease into investing in the coronavirus economy with just a little money, check out these easy-to-use tools.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.