By contrast, make monthly payments of $450 and the debt is retired in about a year and interest comes to $352.
However, there’s lot of card counseling work ahead for advisors. The ability of the average household to eliminate debt is declining, says the Federal Reserve in a recent Survey of Consumer Expectations.
Households’ perceptions about their current financial situations deteriorated in September, with the proportion of respondent feeling they are better off than a year ago decreasing 2.4 percent points to 34.9 percent, the Fed said.
It is up to the advisor to convince the client to make a serious commitment and then find the most effective strategies.
Kiely says clients need a plan to attack red ink. Over an extended period of paying off a single card debt, he says “make the biggest payments first. This will save a bundle on interest.”
But if a client has multiple cards with outstanding balances, look at the interest rate.
“If a client has several cards, first make the biggest payments on the cards with the highest interest rates,” adds Charles Hughes, a CFP in Bay Shore, N.Y.
“Sometimes people should just stop putting charges on their credit cards for a few months. And only begin again when you have cleaned up your debts,” says Lewis Altfest, a CFP in the Manhattan borough of New York City.
His clients generally earn high incomes. But it is “amazing” how many high earners have card problems, he says. Altfest, who says even a family member has had the problem, spends a part of his time card counseling.
Kiely says the zero percent credit card transfer offer can make sense, giving a consumer a year or more to wipe out card debt.