How Do I Pay Off Debt Without Savings?

Advice from Stretch Your Dollar coach Mary Hunt

Q: In a nutshell: We are both in our 50s, have $23,000 in credit-card debt, no savings, and a big mortgage payment. My husband works full time and I work part-time (I'm looking for a second job). We contribute $400 each month to my husband's 401(k). I have been thinking of taking this $400 contribution and redirecting it to debt-reduction for one year only. I am feeling desperate, as I recognize we probably only have about ten years of full-time work left in us. Should we do this?

A: My answer is a qualified "Yes." But let me warn you, that move alone is not going to fix your situation and allow you to retire in ten years.

First off, that $400 in pretax dollars will be more like $325 when you see it in his paycheck. $325 x 12 = $3,900. If you pay every penny of that amount to pay down your credit-card debt, you'll still be in the $20,000 range depending on the interest you are paying.

What you need is a complete plan that addresses your lack of savings (what will you do if you face an emergency?), your unsecured debt, and paying off your mortgage before you retire.

The good news: This is not an impossible situation. You'll be amazed by what a difference ten years can make. Or 15. With the current state of the economy, I think early retirement will be a thing of the past.

Excerpted from Can I Pay My Credit Card Bill with a Credit Card? And Other Financial Questions We're Too Embarrassed to Ask! (DPL Press, Inc., 2009)

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