04 May How to pay off $25,000 in credit card debt

Q. I have 25,000 in credit card debt and the interest rates range from 11 to 21 percent. I hear people go to these credit consolidation places, but you never know which is safe and if it hurts your credit. My credit is great but debt ratio is not, and hurts me getting loans even though I pay everything on an time and not the minimum. What’s the best way to pay it all off?
— Debtor

A. You’re talking a fair amount of debt here.

If your interest rates average 15 percent, even paying $500 per month will take 79 months, or more than six years, to pay it off.

You need to start with a careful analysis of your budget and your monthly expenses.

If you look back at least three to six months, you’ll be able to get your monthly nut, said Jody D’Agostini, a certified financial planner with AXA Advisors/The Falcon Financial Group in Morristown.

Once you know this, and you can apply the amount against your income and taxes to get a picture of your monthly discretionary income.

See where you can pare back so you can use every available dollar to knock down the debt.

D’Agostini said because your interest in compounding monthly, the debt is growing each month.

You should start with the highest interest rate and apply most of your excess to pay this down, D’Agostini said.

“You can either work with a financial planner or chart yourself into a disciplined monthly payment schedule for each debt,” she said. “If there is not enough income to meet these debts, you may approach the creditor to ask each one to get into a payment plan that you can afford based on your budget and ask them to lower your interest rate on each account.”

She said if you commit to a monthly bank draft at a level that you know you can afford, lenders will often extend you the courtesy of a lower rate.

You may want to consider help from a credit counselor. You can learn more about that here.

If there isn’t enough income to pay these off, then you could consider filing for bankruptcy, she said.

“This should be a last resort, since it will impact your ability to get credit and your credit score for up to seven years,” D’Agostini said. “Your ability to buy a home or get a loan of any type will be difficult.”

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This post was first published in May 2016.