Money 911: How to plan for special-needs child?

Q: We have a lot of credit card debt (approximately $25,000 spread over seven cards). We stopped using the cards at the beginning of the year. We also have approximately $2,000 in miscellaneous doctor and hospital bills. Even though we make our monthly payments, it seems like nothing is getting paid off.

My question is: Should we focus on the credit cards with the lowest balances or the ones with the highest interest rates? Or should we try and pay off the other debt that has minimal fees? — Mary, Mechanicsville, Va.

Carmen Wong Ulrich: I love this question! Digging out of deep credit card debt, something I've done twice in my life, is all about creating a system. First, know that credit card-company math is set up to cost you — big! Your minimum payments keep the debt "alive and kicking" as long as possible to earn them as much in interest as possible. So, it's tremendously powerful to pay more than the minimum and can knock years and thousands of dollars off your debt.

BUT! In order for the system to work most efficiently — read: quickly/easily — you need to put the most effort to the debt with the highest interest rate. It's your fastest growing "weed!" For example, you have $25,000 over seven cards. Let's say your average interest rate is 14 percent. If you only make minimum payments, it will take you 15 YEARS AND 10 MONTHS to pay it off! And you'll pay more than $10,000 in interest!

However, if you add just another $200 a month to the card with the highest interest rate first, pay that off and move the full amount, say, that $200 plus the minimum, to the next card and the next, you will be out of debt in TWO YEARS AND ONE MONTH! And you will save $6,400 in interest payments!

Of course, all this works only if you don't take on any more debt!

Q: I want to refinance my wife's car and her current interest rate is 7.4 percent. I am the co-signer for her. If we refinance her car, will that lower our credit score? We only owe $15,000, which is less than the car is worth. The reason I am asking is that we plan to purchase our first new home this year. — JP, Odessa, Texas

Jean Chatzky: Typically, refinancing a car loan won't impact your credit score. You do want to make sure that if you're shopping around to find the best interest rate, you do all of that shopping within a 30-day period. That way, each time a lender checks, your credit score will only be counted as one inquiry in the eyes of the credit-scoring system. This is important because having multiple inquiries on your file indicates to creditors that you're shopping for credit — in other words, you need money.

Other than that, as long as you're refinancing for the same amount you already owe, you should be fine. All you're doing is taking that balance and refinancing to a lower interest rate, which will lower your monthly payment, but not impact your ability to purchase a home down the road.

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