Expert: Gina Boykin - 3/7/2008

Question
I am on disability.I owe a large sum on credit cards.I want to make income to pay off this balance.The credit cards are in collection agencies.I wanted to purchase stocks or bonds to make extra income.I am afraid I may go to a nursing home and need exta care so I want to suppliment my income.How much in bonds or stocks can I own before it effects my disability income.I wanted to just purchase 25 to 50 $ a month.There is also a program in our county called super saver.They match what you put into a bank 2$ for ever 1$ you put in.I am not approved yet but I am goining to apply for the program.I also read alot about goverment grants.Can you give me some advice or information to help me out of this situation.Thanks amy.

Answer
The best way to pay off credit cards is to pay as much as you can toward the balance each month.  Investing to pay off credit cards just won't work.  What is the rate on your cards? 10 percent?  Maybe 15 or 20 percent?  There are no investments that will consistently provide a guaranteed rate of return anywhere near this rate.  Let's say you owe $10,000.  That $10K sitting on the credit card is costing you $1,000 - $2,000 a year in interest.  For you to make that same amount ($1K - $2K) in your investments, you would need to have at least $20,000 invested - assuming that your investments make about 5 percent.  Remember, even if you invest in stocks or bonds that make a higher rate, you still have to pay taxes on these gains, which brings the total return down.  So 5 percent is a reasonable expectation.  I'm being conservative, but you get the point.

Instead of doing this, create a budget.  Be disciplined with your spending.  Put aside as much as you can toward the credit cards to get them paid off as quickly as possible.  Then move on to investments.

Investing really should be secondary to getting out of credit card debt.  Trying to do both at the same time will result in taking at least twice as long to do both, which can cause frustration.  The only exception to this is an emergency fund.  Please make sure you have at least $1,000 set aside for emergencies as soon as possible.

If you are in your 60's (or older) you should look into Long Term Care Insurance.  This insurance pays for your stay in a nursing home or adult living community.  The average cost of a nursing home is $55,000 a year.  If you already 60 or older, it will be easier to pay for the insurance than to try to build investments that will pay this cost.  Again, I will use the example of 5 percent. You will need investments in the amount of $1.1 Million to give you income of $55,000 a year.

The supersaver program you mentioned sounds great. I'm not familiar with it, but I am assuming it is a plan to encourage people to save for retirement or other long-term goals.  This is definitely something to look into.

Lastly, the government grants - what are you trying to get a grant for?  Grants are typically for schooling or nonprofits.  There are no "get out of debt" grants though.  I would need more information on the type of grants you're seeking to help you there.