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Lifestyle Q & A Forum

Should I start an education fund or pay off my debt?

by
Marc Freedman, CFP Certified Financial Planner Freedman Financial Associates, Inc.



Question:
I have about $10,000 in credit card debt. My mom wants to give me $5,000 for the baby's expenses and education fund – should I start a fund or pay off my debt first?
Answer:
Great question! Credit card debt can be very expensive. Below you can see how long it will take you to pay off this debt assuming the credit card charges an average rate of 17% per year. This table assumes a $10,000 debt, 17% interest and no additional purchases:
Monthly Payment
How long to pay off debt?
Money spent to pay off debt
$150
190 months
$28,500
$200
85 months
$17,200
$300
44 months
$16,200
$500
23 months
$12,000
While an elongated pay back schedule is outrageously expensive, I think your mother would be unhappy to learn that a gift intended for your child's benefit was being used to reduce your personal debt. Talk to your mother about your debt problems and ask to see whether she may be willing to help you pay of your liability and pay her back at a more reasonable interest rate.