Hello Rebate Check, Goodbye to Credit-Card Debt: John F. Wasik
February 19, 2008
Feb. 19 (Bloomberg) -- Now that your economic stimulus check is in the mail, what do you do with it once it's in hand?
Want to stimulate your own finances? Consider using your rebate to pay down debt or to refinance. You may have to shelve plans for a vacation or a big-screen television. Yet it might get you back on a savings track and lower your monthly debt outlay.
Still smarting from the bursting of a credit bubble, U.S. consumers may be in the mood to take care of some bills. Four out of 10 Americans polled said they would use the rebate to pay down debt, according to a Zogby International survey commissioned by TransUnion's TrueCredit.com, a credit-rating service.
Only 16 percent of those surveyed said they would spend the rebate on ``something they consider necessary.'' Some 20 percent said they would save it.
Although I'm always skeptical of such surveys -- people typically offer more virtuous responses -- using the money to lower debt is a great choice for millions strangled by bills.
How much you will receive depends on your income, marital status and number of children. If you are married, have two children and your household income is less than $150,000, you will receive an estimated $1,800. Payments will be trimmed for individuals making more than $75,000 and families more than $150,000. The funds should be available in May.
Debt Equation
There's no personal economic benefit to carrying a balance on a credit card. It's an albatross.
Unlike mortgage debt, you can't write off personal credit- card interest on your federal taxes. It's not deductible as a business or investment loss.
How do you work yourself out of debt? Craft a plan. Set a time when you want to pay off what's owed.
Let's say your tab is $10,000 and the annual percentage rate on that debt is 17.50 percent with a yearly fee of $35. You want to pay it all off in 24 months.
There are three approaches you can employ. First, see if you can transfer the balance to a lower-rate card.
To be able to do that, your credit score must be acceptable to the new issuer. The higher the FICO rating, the better your creditworthiness.
You can also spend less each month. That means charge less to your card and pay more in cash -- or cut spending altogether. If you are adding $1,000 in new charges to your balance, it will cost you $1,514 a month to pay off the total. Reduce new monthly spending down to $100 and you only need to hand over $601 a month, according to the credit-card payoff calculator on the Web site of the American Institute of Certified Public Accountants.
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