How to Waste $45,000

On our Credit Cards and Consumer Debt discussion board the other day, a fellow named Jim came clean about his credit card debt. He had racked up $65,000 in bills over several years, but he slowly repaid all of it, starting with his highest-rate debt, which he owed to Sears Holdings ' (Nasdaq: SHLD) Sears store. Then he attacked his Discover (NYSE: DFS) and JPMorgan Chase (NYSE: JPM) debts, finishing with American Express (NYSE: AXP). It took him and his family five long years to pay it all off.

Our board is full of stories like that -- and they can be very inspiring to anyone who needs help believing that there's life beyond credit card debt. Anyone who can plow through that much debt should feel fabulous, right? Well, even though Jim said his credit card balances now all stand at zero, he confessed: "I don't really feel any sense of victory."

What's his problem? "The original $65,000 in debt ended up costing us about $110,000 in payments -- $45,000 in interest. That figure hurts. What a colossal waste of money. Invested, that would have been about an additional 100k for retirement."

How true. Fortunately, Jim learned a lot of valuable lessons along the way, and he was generous enough to share some of the tactics he used to beat his debt, even if some of his methods seem pretty extreme. For example, he dropped his whole life insurance. He even sold his house and replaced it with the cheapest one he could find!

If you're not ready to go that far, you can try negotiating with lenders to reduce your interest rates. Some card issuers will be willing to bend a little, if you've been a good customer. And like Jim, you should try to first pay off your debt that carries the highest interest rate. That may seem obvious, but sometimes, we simply go after the debt we're most tired of seeing -- not always the best approach. Finally, when possible, transfer high-interest debt to lower-interest cards. That's a little like refinancing a mortgage.