Ask Terry Questions How much to save

How much to save

By Terry Savage on November 22, 2019 | Credit/Debt

My husband & I are in our mid 50’s both employed and make about $175,000 a year. We have no kids and except for our mortgage, have no loans. Our mortgage is under $100,000 with a 2.65% interest rate. We each put 20% into our 401k at work. Problem: $25,000 in credit card debt. We can’t seem to live on our salaries. We spend a lot on dining out, media (movie downloads, music, podcasts, etc.) and that’s about it. Our net worth (investments, home, cars) is about $1.6 million. The $25,000 is hanging over our heads. How do we learn & practice better financial discipline? Should we lower our 401k contributions to pay off the $25k or sell some investments from one of our 401k’s or IRA’s? Thank you.

Terry Says

At least you understand your “addiction” to spending — and that’s the first step. You are likely paying nearly 20 percent interest on your credit cards — a true losing proposition. BUT, just taking money out of your retirement plans and paying taxe3s on the withdrawal and then paying off your debt won’t solve your REAL problem — a lack of self-control. And if you don’t solve that problem, you’ll wind up back in the same situation!

So, here’s what you must do. Write down the current minimum monthly payment on each credit card — and then double that amount. Pay that SAME AMOUNT (not double the next minimum) every month. So write it down. If you do that, and don’t charge another penny, your credit card balances will be paid off in less than three years. Then as you pay down the balance on each card — CLOSE it!! Just keep your longest-held card, which demonstrates credit longevity and helps your credit score. But close the others. Each of you can keep one card. Period.

Please write me back in 6 months and let me know you are sticking to the plan. Open your credit card bills and tape them to a cabinet or refrigerator — so each of you can see them. This is actually easier than a diet. And with that income, you can surely keep paying that same amount every month. I will be waiting to hear how it goes!



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