Question

Julio and Juliana say they use credit cards all the time. They always intend to pay them off by the end of the month, but they often don't. In fact, their credit card debt has been rising recently. Since they know that you recently have taken a financial planning class, they ask you how they should handle credit card debt.

What would you recommend for the following?

1. Pay off all credit cards assume there are 3.

2. Corrective/preventative steps to prevent a reoccurrence.

3. Alternative to credit card use.

p.s: It's a weekly discussion, please reply with at least 5 sentences or more

Answer 1

First of all Julio and Juliana should take preventive and corrective steps. As further use of credit cards will further increase their debts, they should decrease and if possible, stop the use of credit cards.

Next, they should start paying off debts of the credit card as further delay would increase the interest liability on a compounding basis.

They can sell off assets which pay lesser interest rates to them, and use the proceeds to pay the credit card debts, as these bear high rate of interest. This will be like substituting the higher interest payout with a lower interest pay out.

They can use alternatives to credit cards. They can opt for customer credit at outlets which advance interest free credit for stipulated period of time. This would be a way to get credit at zero cost.