Your Questions About Pay Off Credit Cards

Sandra asks…

Should I take out a 2nd mortgage or home equity loan to pay off credit cards?

I’m going to be putting my house on the market soon. Should I pay off the cards now or wait til I sell the house? I expect to make enough to pay off mortgage AND outstanding cards but would like to pay cards sooner.

richmama answers:

I’d wait until the house sells. After all, you could be there a while before it sells. Your house is a secured loan, the credit cards, unsecured. I wouldn’t risk it, especially with the state of the real estate market.

Lizzie asks…

Can I pay off credit cards and ask for some interest to be knocked off?

I am going to pay off 4 credit cards. I want to pay these off and close the accounts and will cut up the cards. When I call to do this, I want to ask if they can knock off some of the interest since I am paying them off. Also I have some late fees applied to them. Do you think they will do that? How should I ask? Thanks.

richmama answers:

You need to make sure that you absolutely DO NOT TELL THEM that you will be cutting up the cards after paying them back. They will not want to lose you as a customer, and therefore are very very likely to refuse an interest cut.

What you should do however, is explain to them that the current interest rate is too high, and possibly research around for alternative credit cards that offer better rates, and just drop a hint that you may switch over to them if your interest rates aren’t lowered.

If it doesn’t work, pay off for your credit card as best as you can, remember to be on time, and then ask once again and ‘remind’ them about your good recent credit history.

Jenny asks…

Pay off credit cards or keep in mutual fund?

I have about double the amount of money in a mutual fund than I do in credit card debt. Should I take out the money I need to pay off the credit cards then the money i was paying on the credit cards each month put it back in the mutual fund? Or just keep the money where it is at and keep trying to pay the credit cards off?
The insterest rate on the cards are high 19-23%. I know at the end of the year we pay some kind of taxes on the mutual fund.

richmama answers:

In your case, it’s a no brainer – pay off the credit card debt before you start investing it. Those interest rates are so high (19-20%) that there is no way you can make a higher return. Your best investment right now is to lower your debt. You can see a detailed explanation of how to make this decision here, which might help you:

One other thing you should think about, though: are you just putting this into a mutual fund or into a 401(k)? If you are putting it in your 401(k), you don’t pay taxes on it – so that’s an instant 20-30% return on your investment by saving that money. That’s higher than paying off your credit cards and a better idea.

Michael asks…

What to do when cant pay off credit cards?

I payed on time. I spoke to them over the phone they are no help. The APR’s are outrageous 20% 15%. What can you do if you cant pay off the credit cards? The company’s raised the APR’s it gets difficult to pay all of it off. What can I do? And what will I expect?

richmama answers:

Well… First, cut up the cards and do not charge anything else to them. This is the very reason why you should never carry a balance on your cards… It’s very easy to get into trouble very quickly. If you know you won’t be able to afford to pay it in full at the end of the month, you should stop using the card until the next billing cycle.

After you cut up the cards, probably the best thing to do would be to seek help from a credit counseling service. They’ll work with you and your credit card company to set up a payment plan you can work with, and many of them are non-profit and do not charge for their services.

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