Ask Stacy: How Can I Destroy High-Interest Debt?

Photo (cc) by Alan Cleaver

Stuck in a debt hole is no place to be. And it’s hard to get out when a 15 percent interest rate is digging you deeper and deeper. That’s the subject of today’s reader question. See if you can relate…

Stacy:
I have been paying my chase freedom card faithfully for years. I always pay the minimum or more. The interest is 15.24 percent. My only way to get this balance down is a balance transfer which I’m having trouble doing: Any suggestions?
Thanks,
– Joanne

Before I get to Joanne’s question, it’s time for this week’s musical interlude. It’s a song called “Debt” from country singer Brenn Hill. Check it out, then meet me on the other side for advice that might help Joanne, this singer, and anyone else struggling with debt…

Although I’m not normally a country music fan, that song seemed to summarize where so many of us find ourselves today. Hope you liked it. Now, on to business!

How to get rid of high-interest debt

Joanne has a common problem – she’s paying so much in interest, it’s hard to make progress on her debt. Take a look at the Federal Reserve’s credit card calculator and you’ll see the difference high interest rates make.

For example, suppose you’ve got a $10,000 debt and pay 15 percent interest. If you pay $250/month, you’ll pay the card off in five years and pay about $4,000 in interest. But lower the interest to 10 percent, and the same $250 will pay the card off in only four years, with an interest tab of $2,215. The lower rate saves you nearly $2,000 and a year of debt.

Here’s the step-by-step to get rid of high-interest debt…

Step 1: Find the source of the problem

There’s only one way to create debt: spend money you don’t have.

Sometimes debt is necessary – even desirable. For example, not many people can pay cash for a house, and a home can increase in value by more than the cost of the mortgage interest. An education can also return more in lifetime income than it costs in student loan interest. So debt isn’t always bad.

But if you find yourself in Joanne’s situation – perpetually paying 15 percent interest on a balance that never seems to go away – it’s time to ask yourself a question. Namely, why? Why are you paying interest? Why are you borrowing money? Why are you spending money you don’t have?

You can’t fill in a hole if you’re still digging it. If you’re borrowing money because you’re spending more than you’re making, finding a lower interest rate is a band-aid, not a cure. So Step 1 is to step back. Track your income and expenses with a spending plan, otherwise known as a budget. If you find your outgo regularly exceeds your income, the only solution is to either spend less or make more. Fix that first.

Step 2: Find a lower interest rate

Once you’ve plugged your spending leaks and are living within your means, destroy your debt faster by refinancing it at a lower rate. Here are some possibilities…

  • Pay zero interest with a promo rate. According to in-house credit card expert Jason Steele, the Slate card from Chase is now offering a credit card with a zero-percent interest rate for 15 months, and no fee to transfer the balance. If Joanne has a $10,000 balance, makes $250 minimum payments, and pays zero interest, in that one-month period she’d pay off $3,750. After the promo period, however, she’ll be back at a rate similar to what she has now. But then she could switch again to a…
  • Lower-rate credit card. Joanne could use any number of credit card searches, including ours, to find lower-rate plastic. For example, the lowest rate on our credit card page is IberiaBank’s Visa Classic. Depending on her credit score, she could get a rate as low as 7.25 percent. Paying $250/month with that rate would pay off a $10,000 balance in four years. The total interest she’d pay would be $1,482 – less than half what she’d pay at 15 percent. Another idea? Forget credit cards entirely and use a…
  • Home equity line of credit. Home equity lines of credit – a credit line secured by the equity in your home – offer two advantages over credit cards. They typically have lower interest, and that interest can be tax-deductible. Our home equity rate search reveals the Pentagon Federal Credit Union offers rates as low as 3.75 percent. That’s pretty low. And if Joanne doesn’t have any equity? Then she could always…
  • Check out a credit union. Credit unions typically offer lower rates on all types of loans than banks. Joanne might be able to borrow enough on a low-interest signature loan (an unsecured loan) to pay off her credit card. She might find other types of financing, including lower-interest credit cards, here as well. She can find one here.

Step 3: Destroy your debt and don’t let it return – ever

Every dollar you pay in interest is a dollar lost. It makes you retire later. It separates your kids from an education. It prevents you from starting your own business. In short, it converts your dreams to some bank’s bottom line.

Don’t be like Brenn Hill and sing the blues. Spend less than you make, list your debts, make a plan to pay them off, refinance them at the lowest possible rate, pay them off, and don’t ever allow that to happen to you again.

Got more money questions? Browse lots more Ask Stacy answers here.

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

Read Next
10 Foods That Can Keep for Years
10 Foods That Can Keep for Years

These are some of the longest-lasting groceries you can buy.

10 Things You Should Never Buy on Amazon
10 Things You Should Never Buy on Amazon

Just because you can purchase something on Amazon doesn’t mean that you should.

10 Items Every First-Aid Kit Should Have
10 Items Every First-Aid Kit Should Have

Take control of your health and safety by customizing your own first-aid kit with these Amazon purchases.

It’s Worth Paying Extra for These 14 Items
It’s Worth Paying Extra for These 14 Items

Here’s where to find the sweet spot at the intersection of price and quality.

12 Ways to Maximize Your Social Security Checks
12 Ways to Maximize Your Social Security Checks

You may be eligible for more retirement income than you realize.

View this page without ads

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

Get Started

Most Popular
9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

11 Things Retirees Should Always Buy at Costco
11 Things Retirees Should Always Buy at Costco

This leader in bulk shopping is a great place to find discounts in the fixed-income years.

Over 50? The CDC Says You Need These 4 Vaccines
Over 50? The CDC Says You Need These 4 Vaccines

Fall is the time to schedule vaccines that can keep you healthy — and even save your life.

11 Household Items That Go Bad — or Become Dangerous
11 Household Items That Go Bad — or Become Dangerous

When you get the impulse to stockpile these everyday items, pay close attention to their expiration dates.

8 Things You Can Get for Free at Pharmacies
8 Things You Can Get for Free at Pharmacies

In this age of higher-priced drugs and complex health care systems, a trip to the pharmacy can spark worry. Freebies sure do help.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

These Are the 4 Best Medicare Advantage Plans for 2020
These Are the 4 Best Medicare Advantage Plans for 2020

Medicare Advantage customers themselves rate these plans highest.

The 10 Most Commonly Stolen Vehicles in America
The 10 Most Commonly Stolen Vehicles in America

A new model parks atop the list of vehicles that thieves love to pilfer.

This Is the Cheapest Place to Buy a Used Car
This Is the Cheapest Place to Buy a Used Car

Looking for a good deal on a set of wheels? This should be your first stop.

The 15 Worst States for Retirees in 2020
The 15 Worst States for Retirees in 2020

Based on dozens of metrics tied to affordability, quality of life and health care, these are not ideal places to spend retirement.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

9 Deep Discounts Available on Amazon This Friday
9 Deep Discounts Available on Amazon This Friday

These items are all steeply discounted — but the deals won’t last long.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

26 States That Do Not Tax Social Security Income
26 States That Do Not Tax Social Security Income

These states won’t tax any of your Social Security income — and in some cases, other types of retirement income.

10 Reasons Why You Should Actually Retire at 62
10 Reasons Why You Should Actually Retire at 62

If you can, here are several good reasons to retire earlier than we’re told to.

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.

11 Senior Discounts for Anyone Age 55 or Older
11 Senior Discounts for Anyone Age 55 or Older

There is no need to wait until you’re 65 to take advantage of so-called “senior” discounts.

5 Keys to Making Your Car Last for 200,000 Miles
5 Keys to Making Your Car Last for 200,000 Miles

Pushing your car to 200,000 miles — and beyond — can save you piles of cash. Here’s how to get there.

7 Surprising Features That Boost Your Home Value
7 Surprising Features That Boost Your Home Value

You can add value to your home without hiring a contractor to do expensive renovations.

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.