Certain types of debt are better than others. Worst, by far,
is credit card debt: the interest you pay might be as high
as 20 percent, aftertax, because interest on credit card
debt is nondeductible. Thus, if you have credit card debt
you should pay more than the required minimum to reduce
what you owe. When you pay down a credit card balance with
an 18 percent interest rate, for example, you’re effectively
earning 18 percent per year, aftertax, risk-free.
Look at your credit card statements to see the effective
interest rates. Pay the minimum on your low-rate cards while
you pay off the high-rate cards as quickly as possible.
Then pay off the low-rate cards.
To help you do this, check your mail for offers of low
initial rates on credit cards. You can roll to low-rate cards
to reduce the interest charges while you pay off the balances.
