Financial planner in South Carolina weighs in on paying off credit card debt
As credit card debt in the U.S. reach record highs, a South Carolina financial planner is offering some tough advice.According to the Federal Reserve Bank of New York, Americans have $1.13 trillion of cumulative credit card debt. And now, many people are left wondering, “How do I pay this off?”An Upstate-certified financial planner says the answer is simple but not easy to do.”Spend less than you make, and do it for a long period of time,” Mike Miller, senior private wealth adviser and partner at Blue Trust in Greenville, said. “It’s simple, but it’s not easy.”Miller says if you have balances on multiple credit cards, pay off the one with the highest interest rate first. And he says making the minimum payment each month is not enough. “If all you’re doing is paying the minimum balance, then you made a big mistake making that purchase or those purchase. That’s not a good way to go,” Miller said. “The interest over a 10-year period is going to be way over what you paid for … whatever it is you paid for.”Meanwhile, as Americans struggle to pay off their credit card debt, some are looking to their 401(k)s for help and taking out loans or making withdrawals from their retirement accounts to make their credit card payments. “It’s not ideal. It’s not the best way,” Miller said.But he says there are some cases in which it could make sense.”If you’re paying an 18% interest on your credit card 12%, and you get that money out of your 401(k), and they’re only going to charge you 5 6%, then the math works for you. I’m going to pay back at 5 , or I’m going to pay back at 18 Which is better?”However, when it comes to simply withdrawing money from your retirement account instead of taking out a loan, Miller says, remember, you will most likely pay fees and taxes on the withdrawal. You will also not pay that money back into your account like you will with a loan. “That $20,000 could be worth well over $100,000 if you had left it in there by the time you retire,” Miller said. “And that’s a big negative.”He says always check the terms of your 401(k). If you are considering taking a loan from your 401(k) or making a withdrawal from another account, make sure you know all of your options because every situation is different. Most importantly, he says if you must take out any kind of loan to pay your credit card debt, make sure you have a plan in place to pay it back. “The big problem is, people will take the loan out to pay off the credit card and then it starts all over again,” Miller said. He says oftentimes people will go right back to using the card they paid off. Then, they not only have the loan to pay off, but the new balances on the credit card.”What they need to do is perform plastic surgery and cut that card in half,” Miller. “You’ve got to get out of that spiral. It’s going to keep snowballing and, eventually, you’re going to be maxed out on your credit card. Then what’re you going to do?”
As credit card debt in the U.S. reach record highs, a South Carolina financial planner is offering some tough advice.
According to the Federal Reserve Bank of New York, Americans have $1.13 trillion of cumulative credit card debt.
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And now, many people are left wondering, “How do I pay this off?”
An Upstate-certified financial planner says the answer is simple but not easy to do.
“Spend less than you make, and do it for a long period of time,” Mike Miller, senior private wealth adviser and partner at Blue Trust in Greenville, said. “It’s simple, but it’s not easy.”
Miller says if you have balances on multiple credit cards, pay off the one with the highest interest rate first. And he says making the minimum payment each month is not enough.
“If all you’re doing is paying the minimum balance, then you made a big mistake making that purchase or those purchase. That’s not a good way to go,” Miller said. “The interest over a 10-year period is going to be way over what you paid for … whatever it is you paid for.”
Meanwhile, as Americans struggle to pay off their credit card debt, some are looking to their 401(k)s for help and taking out loans or making withdrawals from their retirement accounts to make their credit card payments.
“It’s not ideal. It’s not the best way,” Miller said.
But he says there are some cases in which it could make sense.
“If you’re paying an 18% interest on your credit card [or] 12%, and you get that money out of your 401(k), and they’re only going to charge you 5 [or] 6%, then the math works for you. I’m going to pay back at 5 [percent], or I’m going to pay back at 18 [percent.] Which is better?”
However, when it comes to simply withdrawing money from your retirement account instead of taking out a loan, Miller says, remember, you will most likely pay fees and taxes on the withdrawal. You will also not pay that money back into your account like you will with a loan.
“That $20,000 could be worth well over $100,000 if you had left it in there by the time you retire,” Miller said. “And that’s a big negative.”
He says always check the terms of your 401(k). If you are considering taking a loan from your 401(k) or making a withdrawal from another account, make sure you know all of your options because every situation is different.
Most importantly, he says if you must take out any kind of loan to pay your credit card debt, make sure you have a plan in place to pay it back.
“The big problem is, people will take the loan out to pay off the credit card and then it starts all over again,” Miller said.
He says oftentimes people will go right back to using the card they paid off. Then, they not only have the loan to pay off, but the new balances on the credit card.
“What they need to do is perform plastic surgery and cut that card in half,” Miller. “You’ve got to get out of that spiral. It’s going to keep snowballing and, eventually, you’re going to be maxed out on your credit card. Then what’re you going to do?”