PAYING DOWN DEBT QUICKLY

Ohio residents might be interested in learning more about how to pay off debt quickly. A reader of a national column on personal finances recently asked for advice on the fastest way to pay down credit card debt. They had incurred $50,000 in debt, with a 24 percent interest rate. They did this by transferring balances from one card to another and using credit line accounts, and the column assumed that the consumer was taking advantage of teaser introductory interest rates on credit cards.

They wanted to make only the minimum payments and asked how long it would take to clear the balance, including the interest. The columnist told them if they only paid the minimum owed each month the process of paying down the debt would slow over time. He explained that the minimum payment was always the amount of interest owed plus 1 percent of the principal. As the principal decreases so does the minimum payment amount.

If they only paid that small an amount of the principle, it would take more than 42 years to pay off the debt. Moreover, interest charges would increase the amount they paid to $99,336.04. Since they could afford to pay their current minimum payment of $1,500, the columnist suggested they continue to pay that amount even as the minimum owed drops. That would allow them to pay off their credit card debt in only five years.

Many people who are overwhelmed by credit card, medical and other debt cannot afford to make the minimum payments. However, a bankruptcy might give a person the opportunity to seek debt relief and might allow people to discharge certain balances. A lawyer might be able to help a client to keep their home even while going through bankruptcy.

Source: FOX Business, "Fastest Way to Pay Down $50K Credit Card Debt", Steve Bucci, July 31, 2014