I have substantial credit card debt that I would like to pay off.  I
attempt to pay them off per paycheck.  Unfortunately, I do not have
the discipline not to immediately use the new available balance on my
credit card I just paid some money to.  I need some advice.

I thought about increasing my withholding held from each paycheck on
my W-2 form so it will accumulate and I can pay off my debts all at
once with my refund.  I would pay the credit card monthly minimums
till I get the IRS refund. However I fear that the IRS will penalize
me for having a refund over $18,000.  Is this true?  I know I will
lose about $2200 for the year in card card interest with this plan.

My mother suggested I invest in an bond every paycheck, but I would
rather have my paycheck deducted before it gets into my hands.  Any
other ideas anyone could suggest to me?  Any ideas you can come up
with are greatly appreciated.

To sum it up, will the IRS W-2 withholding $1600 a month work?  What
else is that additional withholding line for on the W-2 form?

Thanks.

---

Request for Question Clarification by nenna-ga on 01 Nov 2006 14:03 PST

Have you thought about just cutting up the cards until they are paid
off? You can have a new card reissued under the premise of them being
lost once your balance is lowered?

Let me know if this is an avenue you'd be willing to explore. If so,
please tell me what Credit Card Companies so that I may find out the
policy for you on reissuing cards.

Nenna-GA

---

Request for Question Clarification by nenna-ga on 16 Nov 2006 09:19 PST

Hello again,

Without a response to the clarification I can not continue to research
this question. Please respond as soon as possible so that I can
continue to search with the information you provide me.

Nenna-GA

buying bonds while you have substantial credit card debt doesn?t make sense to me.

the irs is certainly not going to penalize you for getting a big
refund.  they?ll be more than happy to take your zero interest loan
for a year.

but it?s a bad idea for YOU.  in addition to the substantial interest
hit you?ll take, be honest with yourself; if you can?t resist spending
up to your credit limit every month, you KNOW you?re going to blow
most of your big refund on something you really want, instead of using
it to pay down your debt.  then you?ll be even worse off.

if you really can?t resist spending up to your credit card limit each
month, cut them all up.  pay down your debt first thing each month, as
much as you can budget, highest interest rate first.  buy everything
else with cash.  when you run out of cash, you?ll have to stop buying
stuff until next month.

most debt reduction schemes are fine-tuning variations on this theme.

there is no such thing as a debt reduction plan that does not require
self discipline.

-cab

I second... no, make that third... what barneca and nenna have said. 
Cut up those cards, they are a trap for you.

I highly recommend that you get Dave Ramsey's book "Total Money
Makeover".  He is very motivational and still very practical.  He has
helped thousands get out of debt and greatly increased their
situations in life.  You can find this book for around $8 (last time I
checked) on www.half.com or other online book sellers.  It is well
worth the time/money investment as it is a fun read and he will make
you feel very good about rapidly getting out of debt and investing in
your future, and Dave will help you every step of the way.

At the risk of joining the chorus, I gotta agree with the earlier comments.

If you problem is that you don't have the self-discipline to not
charge stuff on your credit card, then you should remove that
temptation.  Cut up your cards. Or at least take them out of your
wallet so you're not tempted to use it. Or (as one famous, amusing,
but effective tip goes) take your credit cards and freeze them in a
block of ice in your freezer. Just get away from your cards.

As for your idea of using extra W-2 witholding to accumulate a tax
refund that you could use, once a year, to pay down your credit cards,
well, I find that idea over-complicated and, frankly, a bit
ridiculous.

If you're saying you could take $X.00 extra dollars per paycheck and
earmark it to pay down your credit card debt, that's great.  Develop
the self-discipline to do it, every paycheck, every month.  But to
take that extra $X.00 per paycheck and turn it over to the government
for tax withholding with the hope that you'll get it back once a year
and then use it pay down your debt seems crazy. (Heck, with all the
complexities and potential revisions to tax laws, there's no guarantee
that your refund will be as large as you think it would be.)

Rather than have an extra $X.00 withheld from every paycheck, why
don't you set up an automatic payment from your bank account to your
credit card company in the amount of $X.00?  Either your bank or your
credit card (and probably both) can probably set something up fairly
easily so that your payments get made on a certain schedule (say a day
after your paycheck clears into your bank account.)  The result will
be almost as if you're seeing the amount deducted from your paycheck
before you "get your hands it" but will almost certainly pay off your
credit card burden more efficiently than your
once-a-year-through-withheld-taxes plan.

As for your mother's idea of buying bonds, I have to agree with
barneca above. Buying bonds (or most other sorts of extra investment
opportunities) make almost no sense while you have substantial credit
card debt.  The interest on your credit card is likely so high that it
would offset any benefit you would get from investing in bonds, or
mutual funds, or bank CDs and savings accounts, or whatever else.  Pay
down you credit cards. Keep them paid off. Then look to other sorts of
investments.

As for your question as to what that "extra withholding" line is for
on a W-2 form, there are certainly folks for whom extra withholding
makes good financial sense (or, I suppose, people who's patriotism
extends so far as to want to regularly give extra money to the
government.)  From what you've described of your situation, it doesn't
seem as if you're one of those folks, though.

You can get control of your debt. You can get control of your
spending. You can get control of your credit cards.  There are many
approaches you can take, but (again, as barneca points out) they
involve some active, disciplined participation on your part.

Good luck!

Many banks offer what's called a "Christmas Account" which is simply
an auto-withdrawl from your checking into your attached savings
account --on a certain date or dates. You could make the date the day
after you deposit your paycheck, however many times a month that is...

By overpaying your taxes, you are giving the government an interest
free loan while you are accruing interest at very high rates.

Ther better solution might to direct deposit a portion of your
paycheck into an additional bank account, a savings account.  Dont get
checks and dont get an ATM card.  Just use elctronic billpay to send
stuff to the credit card company.