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There Are Ways to Pare Down That Good-for-Nothing Credit Card Debt

November 05, 2000|LIZ PULLIAM WESTON

Q I ran up charges on my Visa card and would like to know the most expedient way to get rid of this debt. Initially my credit card interest rate was 7%. Then it went up to 30%, and now the bank has reduced it to 15%. I pay $100 a month on the card and only $40 is going to the principal. This has left a very bad taste in my mouth, and I have stopped using the card altogether. I don't have extra cash to just pay off the $4,800 balance.

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A Congratulations for figuring out what a bad deal credit card debt is. Many people don't come to that realization until they've frittered away thousands of dollars in interest, and some don't get it until they're so far gone they wind up declaring bankruptcy.

If you don't have extra cash to pay off the card, then make larger payments each month. At your current rate, it will take you six years to pay off the $4,800 debt. If you boost your payment to $150, you'll have that debt paid in 3 1/2 years--assuming you don't charge anything else. Double your payment, and you'll be debt-free in a little more than two years.

Not sure you can find the extra cash? Discontinue cable, do without the cell phone, eat in more often--find a way. If you get a windfall such as a bonus at work or a tax refund, apply it to the balance and you'll be out of debt even faster.

If your credit is good, you might be able to find a card offering a fixed rate closer to 10%. Though nothing is truly fixed in the credit card world--card issuers can change their terms at any time--this should give you more stability than those low-rate offers that expire after a few months.

Tuition Aid Picture Has Changed

Q College costs often loom large in family budgets, and financial planners duly take this into account in long-term planning. This may sound quaint, but whatever happened to students working their way through college, as was common in my day? I am a member of the, let's say, grandpa generation. Since your undergraduate days are not far behind you, perhaps you can shed light on this matter, which I find puzzling.

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A Bless you, but my undergraduate days are far enough behind me that I was able to get through college without a book bag full of debt.

Since the mid-1980s, however, the cost of college has soared and the nature of financial aid has changed. Instead of grants, which don't need to be paid off, most students are offered loans, which do.

Many parents understandably would rather help their children get ahead by saving money for their educations, rather than watch them fall behind under the burden of too much debt.

That said, it wouldn't kill the little darlings to at least have a summer job to help pay expenses. As you doubtless know, having to fork over your own cash for college tends to make you value the experience more.

'Financial Advisor' Term Debated

Q Just a note about the woman who followed a bank employee's advice that it was OK to borrow from her individual retirement account, only to learn that the withdrawal was taxable. Though what her financial advisor told her was wrong, you said that "just because someone calls himself a financial advisor doesn't mean that he knows what he's talking about or follows any ethical standards."

The financial advisor title is used by many highly trained advisors at major brokerage firms across the country. Being in the most highly regulated industry, we are constantly reviewed by the National Assn. of Security Dealers (NASD), as well as our internal compliance departments.

By saying what you did, you implied that a "financial advisor" has no real value. I hope in the future you can avoid discrediting the financial advisor title, and instead focus on the individual or the financial advisor's company.

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A The term "financial advisor" is meaningless. Anyone can call himself a financial advisor or a financial planner. There are no experience, education or ethics requirements--none. If you're regulated by the NASD, it's because you sell investments.

Real financial advisors earn and maintain credentials such as the CFP (certified financial planner), CPA (certified public accountant) or ChFC (chartered financial consultant). Smart consumers need to know the difference between a credential that means something and a title that doesn't.

The woman who wrote was lulled into complacency by such a meaningless label and wound up paying dearly for it. If you want the term "financial advisor" to mean something, then work with financial planning groups to set nationwide standards for those who use it.

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Liz Pulliam Weston is a personal finance writer for The Times and a graduate of the personal financial planning certificate program at UC Irvine. Questions can be sent to her at liz.pulliam@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012. She regrets that she cannot respond personally to queries. For past Money Talk questions and answers, visit The Times' Web site at http://www.latimes.com/moneytalk.

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