Gov. Scott Walker has a credit card debt problem.
The Wisconsin governor and GOP presidential candidate has between $20,000 and $30,000 in combined credit card debt on two separate cards, according to his recent public financial disclosure. On one card, in fact, he’s enduring a particularly onerous 27.24% APR.
What this development portends for the self-described fiscal conservative’s political future is unknowable. Walker currently rests in third place among the 17 Republican candidates vying for the party’s nomination, according to recent polls.
But Walker’s debt trouble doesn’t necessarily make him so different from the average indebted household — which, after all, is also burdened by more than $15,000 in credit IOU’s. MONEY talked with a number of credit card experts to come up with a plan to help the governor alleviate his troubles. If you are carrying a balance as well, there’s a lesson here for you too.
State of Affairs
First, the facts: Walker says he has $10,000 to $15,000 worth of debt on two separate cards, with a 27.24% APR on his Barclaycard and and 11.99% on a piece of Bank of America plastic. The astronomical Barclaycard APR is a particular problem, say experts.
How bad is it? If “Walker were to only make minimum payments on his bill every month, it would take him approximately 142 years to pay off his Barclaycard debt completely,” says consumer financial site ValuePenguin.com’s Robert Harrow.
Plan of Attack
The first thing Walker needs to do is lower the interest he’s paying on his debt. One way to do this is to open a balance-transfer credit card, which offers an extended 0% interest period, but usually charges a fee for the transfer.
But he may not be able to move everything over at once. Since his debt is so high, “he may not get a large enough credit line to transfer the entire balance, in which case he should transfer the highest balance first,” says Credit.com’s Gerri Detweiler. Issuers will rarely allow cardholders to transfer more than $15,000, Harrow adds.
What cards should he consider? “Chase Slate would be a terrific deal for him,” says Detweiler. A MONEY Best Credit Card from 2014, the Slate offers balance carriers a bevy of features to help them pare down a bill. The main benefit is that borrowers can transfer their balance without a fee — generally 3% — if they do so within 60 days of opening the card.
Walker would then have 15 months of 0% interest during which he could chip away at his debt. If you assume Walker is right in the middle of the disclosure form’s range, owing $12,500 on the Barclaycard card, he could retire his debt on that card with 15 payments of $833 a month — not an impossible task, since he takes in nearly $150,000 a year from taxpayers. To pay off his debt over the same time period but leaving it on the Barclaycard would require payments of almost $1,000 a month.
To get a 0% interest reprieve for the Bank of America card debt, Walker would do well to sign up for the Citi Simplicity, another MONEY Best Credit Card. While he would confront a 3% fee on the transfer — equal to $375, if we again assume a balance of $12,500 — he’d have 21 interest-free months to settle his balance. That would make his monthly payments about $600.
So Walker could rid himself of the debt by paying roughly $1,433 a month for 15 months, and then $600 for an additional six months.
There’s one potential roadblock here: Both the Slate and the Simplicity require excellent credit. And although it’s possible to carry a balance and also have a FICO score in the 700s, Walker may not be so fortunate.
“You don’t get saddled with a 27.24% interest rate on a general use credit card unless the bank considers you ‘of elevated credit risk,'” says CreditSesame.com’s John Ulzheimer. The average APR is about 12 percentage points lower.
There are a couple reasons why Walker’s Barclaycard APR could be so high. Harrow suggests one scenario: Walker could have “missed one or more credit card payments, causing a penalty APR to kick in.” Such penalty rates are often between 27% and 29%, he notes.
Or Walker could just have a low credit score. Since credit cards are not collateralized, low-credit borrowers are charged higher APRs.
If Walker has bad credit, he has a couple of options.
One is to take out a debt consolation loan. “With a consolidation loan, the goal is to get a personal loan at a lower rate than what he’s paying now on his cards,” says credit card expert Beverly Harzog, author of The Debt Escape Plan. “He’d combine both balances into one loan. This simplifies life, and hopefully he’ll save money on interest.”
Walker could check out the personal loan rates available in Madison, Wis., by looking at a site like Bankrate.com.
But there’s no guarantee he’d get a lower interest rate on a personal loan, in which case he’d move onto an old-fashioned Plan B: simply hunkering down to pay off the debt. Harzog recommends he tackle the Barclaycard first, since it has the highest APR. “He’ll need to pay much more than the minimum on that card while paying the minimum on the Bank of America card,” she explains. When he finishes one card he can move onto another.
Of course, this will require some discipline, as well as adherence to a budget and a new understanding of what credit means and how to use it. “As he pays off his debts, I urge him to get to the root of the problem, or he could end up in debt again,” says Harzog.
Americans of all stripes fall on hard times, resort to poor spending habits and need help regaining their finances. Sometimes that person is your neighbor, or your colleague — and sometimes it’s the man on TV asking for your vote for president.