No debt is good, but getting to zero through any means possible isn’t always a good idea. This is especially true when it comes to credit cards, as you can end up in greater debt or pay more in interest or fees if you take the wrong path.
Bankrate talks about six ways of paying down credit card debt that aren’t the best way to go. First, of course, is only paying the minimum each month. Interest stacks up almost as fast as that minimum payment knocks the balance down, which means it can take years to pay off cards. In fact, depending on your balance and terms, it could take 20 or 30 years to pay off an account by making the minimum payment.
At the same time, you don’t want to dip into retirement to pay off credit cards. Not only is it more difficult to save for retirement as you age, you also pay a hefty tax penalty for raiding retirement accounts early. According to Bankrate, you also don’t want to touch your emergency savings unless you have a foolproof plan to replenish it immediately. If you have an emergency after paying off a credit card, you might just run it back up with those costs.
Other unwise ways to pay does credit card debt, according to Bankrate, include tapping into equity lines on your home or skipping the payment on a home for the month. A foreclosure takes longer than a credit card account closure, but skipping one month easily turns into two or three, and foreclosure can loom before you know it.
Finally, Bankrate advises against taking out another loan. This is especially true if your credit card account is still open; you might pay off the balance and use the credit card again, ultimately doubling your debt. If you find yourself thinking of stealing from Peter to pay Paul, then shifting money around might not be the right solution. Bankruptcy or other legal debt relief solutions might be more viable options.
Source: Bankrate, “6 risky ways to pay off credit card debt,” Janna Herron, accessed Sep. 22, 2015