by Tricia
Credit Card #2’s balance transfer rate is officially gone (current balance $2,794). I didn’t realize it until a few days ago when I finally caught up with finances after taking a little break. Instead of 6.9%, it is now 14.24%. Not good.
Credit Card #7’s balance transfer offer will be expiring at the end of this month (current balance $5,857). That one was at a sweet 0% rate. I’m not exactly sure what the rate will be, but I think it will go to around 16%. Double not good.
One of the main things I’ve been trying to do is to minimize the total finance charges that I pay. Paying less towards finance charges means that there is more of my money going towards our principal debt balance. It’s almost like a game sometimes, with trying to figure out your next move. I’ve been patiently waiting for an adequate balance transfer offer to arrive only to come up empty-handed. It’s time to do something.
My husband has cards in his name and I have cards in my name. In the past, we have shifted debt around so one of us has better credit. It turns out that one of his cards has a 9.9% balance transfer offer available. Not the best rate, but it will get all of our credit card debt under his one card and I will have zero balances on all of my credit cards. That will raise my score (it’s currently in the 740 range) and I should be able to get another credit card with a very nice balance transfer intro offer.
Did I just say that? You can tell I’ve run out of options because the last ditch resort was to get yet another credit card. My husband’s credit will take a hit, but only temporarily until I get a new card. Then we will split our credit card debt up again.
After writing the above and thinking through it a little bit more, I became concerned about my husband having my credit card debt burden if something should happen to me because we have been keeping it pretty equal lately. Then I remembered something…I have life insurance! That will enable him to pay that off if something should happen. So we are covered there.
I’ve already initiated the balance transfer for Credit Card #2. In about a week I will initiate the other transfer. Then I will wait a little bit for the new information to show on my credit reports and then apply for at least one new card with a nice balance transfer offers.
Now I need to find a good card to apply for.
I imagine you won’t be interested in this advice given some of your previous blog entries, but here goes…Playing games with credit cards and your credit score is not the best way to get out of debt.
First, stop spending so much energy on your credit score. It will get better naturally over time. Then it will go down if you truly stay out of debt since credit scores are based on people staying in debt. But here’s the trick…you don’t need a credit score to get a good mortgage rate (if you do manual underwriting) and you don’t need any kind of other debt for the rest of your life. I have millionaire friends who don’t have good credit scores because they don’t borrow money.
Second, rather that putting so much effort into juggling credit cards, put massive energy into just paying off the balance for 1 solid year. Both you and your husband can get extra jobs, work like crazy people (temporarily!), and pay off the debt quickly rather than endlessly juggling these cards and trying to outsmart a billion dollar industry.
Finally, at least cancel your paid off credit cards. They are a financial danger waiting to happen. Some people think it will hurt their credit to cancel old credit cards. I say who cares. But, for those who do care, they should know that it also hurts your credit score to have a bunch of available credit. That means you are a potential credit risk because at any moment you could decide to go deeply in debt with the 7 empty cards in your wallet.
Keep your financial life simple and clean. If you want to have a credit card available, keep 1 or 2 open max. Pay off debts quickly and then stay debt free.
Good luck!
I’ve always had a personal policy to try to avoid addressing debt with debt. I understand the desire to lower interest rates as much as possible and reduce fees. Yet another credit card in the pocket is always a risk.
Thanks for sharing your examples. Balance transfer credit cards are really great to combine debts, to transfer balance from the higher rates card to lower one and pay less, etc. But unfortunately, not every credit card is available for balance transfer, mostly those for good or excellent credit.
How’s this for irony? Right now on this particular thread Google’s targeted advertising has ads at the left of this screen running for 0% balance transfer credit cards. Welcome to the modern advertising world of 2007!!
Dear Blogging Away Debt,
I totally agree with KF. You really shouldn’t worry about your credit score. You don’t need it. My file indicates: “No Credit/Customer history for six years!”
Stop it with the credit cards. Just pay them off as fast as possible. Take on a 2nd job, sell something, just do it. Do not take on more credit cards. Stop playing credit card games.
Your solution to help your husband was your death insurance? What about if you become disabled and can’t work? Then what?
Hi Tricia,
my hope is that this will sound constructive to you. your mentality is still that of a poor person. i agree with the above comments that you need to stop revolving your life around your credit score and games to pay off credit cards. work an extra job to just get the cc debt over with – it will mean less sanity in the short term and less time with family, but it will give you more of both of those for the rest of your life. and, as discussed previously in this blog, your husband needs to go get paid work while he also works to expand his business.
a poor person’s mentality means a panicked thought process of “i always need to have a credit card around and a good credit score so i can get more credit cards in case a financial disaster/emergency hits.” a wealthy person’s perspective is confidence that you will eventually build up a big emergency fund and other sources of wealth so that day-to-day expenses will not become an emergency. it is confidence that you’ll never need to rely on credit cards again. it is a total commitment to never spend more than one earns ever again. it is an assumption that one will prioritize building wealth long-term over short-term, frivolous financial choices.
a poor person’s perspective is that i have to be a slave to financial institutions to keep my credit score high and to play the credit card company’s games so that i can get more credit in the future. good credit scores are only needed for the type of crappy credit that poor people get – bad credit cards, bad car loans, etc. wealthy people (by that i don’t mean millionaires – i mean people with some decent level of assets and financial stability built up) don’t need to rely on such bad sources for credit. they can go to a manual underwriter for a home mortgage and get a great rate by someone who actually evaluates their entire financial situation. if they ever do need credit, they can get credit on GOOD TERMS from a credit union or other bank (for a car, emergency money, home improvements – not that i recommend any of this) based on a real banker who evaluates their whole financial situation and doesn’t just rely on a fico score. and anyone, i repeat anyone, can still get credit cards even without a credit score. they issue them to dead people, dogs, people in comas, and babies every day.
also, i agree with the comment above that it will help your mental clarity and peace of mind to cancel all of your zero balance credit cards. learn to keep your financial life simple and peaceful. learn to do things on your terms rather than making yourself a slave to financial institutions.
Discover has a card where there is a 4.99% balance transfer offer for the life of the balance and has no balance transfer fee.
You might want to look into that. Try to find a card that gives you a balance transfer rate until the balance is paid off. I have two cards like that. One is 1.99% and the other is 3.99%. It’s a good feeling knowing I’m not paying as much for interest but it will be an even better feeling when that debt is completely paid off.
Hang in there. Transfering balances can be stressful and all that but if it means you save $20 or more per month by transfering than I say go for it. Just remember though that the balance transfer fee does add up.
This is what I like to do when determining if it’s worth doing a balance transfer. bankrate.com or Msn.money.com offers a calculator to determine how much your payments will be based on how much you owe and what the interest rate is. I have found times that when companies offer a 1.99% interest rate for 10 months and have a 3% balance transfer fee, I end up saving only $3 or so a month if even that. Then after those 10 months I have to transfer again because the interest skyrockets up to 20% or so. (This is based against an account that I have with a 9.99% interest rate). In my opinion it’s not worth moving money around for a few months and then having to go through the whole process again. Really, it just comes down to how the numbers come out. I’m a math person so I like to calculate things. If you ever want help, just send me an email (kasey458@[EDIT].com) and I’d be willing to run your numbers and let you know if your transfer is a good idea. I’ve gotten so many good ideas from people online who are working hard to pay off debt that I just hope I can return the favor somehow.
By the way, you have been doing a great job. I read your posts from time to time. Found you through a friend.
At this point, I think you are doing everything you can to pull yourself out of credit card debt and get back on your feet and I applaud you for it. I also agree with several of the posters above that at this point, I would not worry about your credit score. Once you are out of cc debt, cancel all except a couple and then worry about your credit score.
I disagree that wealthy people do not worry about their credit score and all can be overcome because your credit score affects more than people realize from whether you pay a deposit to a utility company, what kind of insurance rates you get, to even if people will hire you. It is not just the rates you pay on a loan.
Why not call the credit card companies and request a lower rate? That’s what I’ve done for quite some time now. Although I don’t get a nifty 0% rate, I did get 2.99% for 6 months, and after doing the math, realized that it would work out cheaper than paying for a balance transfer. It helps if you’ve got reasonable credit and if you’re never late on payments.
While it can be risky to move debt from card to card, to get new cards and keep paid off cards, it can also be a valid way to get out of credit card debt, if you’re committed to not acquiring new debt. My husband and I do what Tricia’s doing, and our debt is half what it used to be, and we’re not adding to it. If we left the money on the high-interest cards, we wouldn’t be nearly so far ahead. It’s all on a 0% card now (Bank of America), and we’re saving the extra payment money in a high-yield savings account until the 0% ends. If our spending were still out of control, that could be a problem, but we are following our budget and we have other money saved up for emergencies, so it’s working. It all depends on whether or not spending is under control. I just don’t think it makes sense to throw money away on interest when you have other options.
the only problem with using BT is the BT fees. I hope the one you are transferring to does not include a BT fee as well. hopping CC with the debt can be a good idea, but within reason. if you know you can always transfer, you are more apt not to pay off the debt. plus, with the credit cards you have, you have a chance of missing something as in CC #2. that is a high penalty to pay.
I’m new to Personal Finance blogging but for the life of me, I cannot understand why anyone would discourage you from transferring your balances to a 0% card if you can get one. Using myself as an example, I have a $7000 balance on a 9.9% card. That’s $57.75 a month in finance charges that could much better be put driving down the balance. I don’t disagree with those who say to look for ways to throw extra money at the debt, including getting another job. But why spend $57.75 a month on finance charges when you don’t have to?
Also, it is ludicrous to cancel your cards. Tear them up, put them in the freezer, do what it takes NOT to use them, but do NOT cancel them–it does untold harm to your credit score. (I do agree that focussing on your credit score is not what you need to be doing right now, but deliberately trashing your credit score makes no sense either.
Good luck on your debt reduction. I love your blog and have linked it to mine.
Grace
I agree with those who think you should go ahead and consider transferring the balance. A lower rate is a lower rate, and that means more of your payment will go towards the principal. I like Kasey’s suggestion to use a calculator to see what the numbers really will be. That will allow you to determine if the hassle is worth it.
Granted, focusing on your credit score isn’t that much a big deal, especially since you already have a house 🙂 But, I can see where you’re going: a better credit score can get you lower interest. I’ve also heard it can affect your insurance rates and employability, so it is something to think about it.
KF – I always read the comments and think about what the commenter suggested. I may not always follow what everyone says, but I do read and value other’s opinions.
I guess I should clarify something about our credit scores. While I would like them to get higher, the reason I mentioned the above with trying to raise mine was for the purpose of getting a new credit card. My score has been naturally rising as our debt is reducing.
Thank you for mentioning something about manual underwriting. I had no idea something like that existed. When we got our mortgage ($35,500 @ 8%), it was like pulling teeth. Banks didn’t want to lend to us.
Boomie – I don’t have the answer for the disability question. Since my job is not physically demanding (I sit at a computer all day), it would take a severe illness or something that affected my mental capacity to get me out of work. It could still happen. I’ve been wanting to get disability insurance, but I have yet to shop around. Regardless of where our credit card debt is (my card or my husbands), a disability would be very tragic.
bella – don’t worry, your comment sounds constructive. I enjoy reading differing viewpoints that are not attacking one’s character. I think your comment was wonderfully written.
I agree that I have a poor person’s mentality to a point and I think it will remain until the credit cards are paid off. I am always going to be concerned with emergencies and the like because I do not have the means to cover it. At least not yet. If I lived alone, I’m pretty sure I would have a different attitude. But I have my little boy to be concerned about.
crazypumpkin – I tried calling my cards and I received the same answer, “You do not have another rate available at this time.” I’m not sure why I keep getting that answer because I have paid on time and my credit score is good. Quite frustrating, but at least it fuels the fire to get rid of them.
Honestly, we’re in the process of doing the same thing. We just applied for a credit card with a 12 month 0% on balance transfers offer (and no BT fee for that first transfer) and when we’re approved we are moving the cc debt there. I can’t stomach paying $50-60 in interest per month that could be going to reduce the prinicpal balance.
Good luck!!
One thought to consider regarding keeping your credit cards in your name only: regardless of whose name is on the card, if the cards were used WHILE you two were married, both you AND your husband are responsible for it. On the other hand, if all your cc debt is from before you were married, it belongs to you individually. I may be wrong on this, but I researched it before we got married since I entered the marriage with far more cc debt than my husband, and, like you, I didn’t want him to get saddled with that debt if something were to happen.
Also, I’m an anti-cc person, but I still don’t see anything wrong with transferring your debt to a lower-rate card while you’re getting out of debt. We did it, and it worked for us, and likely saved us some money, which we were able to put toward the balance payments, rather than interest. We haven’t used our cards since, and we really don’t worry about our credit scores since we’re more concerned about building wealth than getting into more debt in the future. I’ve found debt (of any kind) just feels like a boat anchor around my neck, and I’d prefer to pay cash for stuff (although we still have a mortgage). Currently, we’re saving to pay cash for cars to replace our two 11-year-old ones; and we’re paying cash for my husband’s two-year graduate degree program. Feels sooooo good not to have more bills coming in the mail every month!
I totally agree with your approach (and disagree with the earlier posters) – getting lower interest rates is one of the best ways to break out of the cc debt cycle. We have been doing BTs and now all of our old debt is at 4.99 and lower (and being paid off aggressively!)
One suggestion that worked great for us was to go to a card issuer / bank that you don’t currently have a relationship with. This may seem counterintuitive, but believe me they want your business and will give you a good rate to get it. For us that was Discover (some one mentioned one of their offers above). Others seem to have some success as a new customer with Bank of America and Capital One (although they tend to give out low credit limits).
And I agree that while it is not ideal to have to get more credit cards, paying less interest on that debt is ultimately better in the long run. Good luck!!
Grace,
You are incorrect. Canceling credit cards does not do “untold harm” to your credit score. At most, it will temporarily knock your score down by ten or twenty points. However, the score will bounce back soon if you continue to be financial responsible. And as someone said above, having too many credit cards open can actually hurt your credit score. Think about it…if you were a lender, would you rather lend to someone who has 2 credit cards open that have a zero balance and a long-term history, or would you rather lend to someone who has a wallet full of 10 credit cards with a zero balance? I’d rather NOT lend to someone with 10 empty credit cards because this is represents 10 potential ways for them to go back into debt and to then not be able to afford paying me back.
If you insist on keeping credit cards and working to groom your credit score, the best way to do so is to pay off your credit cards and then keep 1-2 of them open that you have had the longest.
Hi Tricia,
Yup, it’s true regarding manual underwriting. I’m glad I was able to bring a little new info to the blog — I was worried I was being redundant!
I promise that once you get out of debt and your family is solid financial picture, you will have no problem getting credit at great rates.
Here’s the story: a couple of decades ago, bankers actually had authority and used their brains. They would sit down with potential borrowers and evaluate their whole financial situation (salary, debt, payment history, stability, etc) and then decide if a loan should be made. Eventually, this became almost mechanized by lenders mainly just looking at a numeric credit scores…I heard one financial guru joke that it’s like monkeys could run banks just based on looking at a score.
However, it’s still possible to apply for mortgages, lines of equity and other bank loans the old fashioned way. It’s called manual underwriting. Many banks still do this. It’s where you actually sit down with a banker and they evaluate your financial situation rather than just pulling up a FICO score. In fact, federal underwriting guidelines require that you receive a mortgage at the best interest rates if you meet certain manual underwriting guidelines (just like people with high FICO scores).
So, there really is no need to be a slave to one’s credit score. Of course, that doesn’t mean people should set out to trash their credit. It just means that you don’t need to jump through hoops to increase your score and you don’t need to stay in debt for the sake of maintaining a credit score.
Happy 4th!
Why not a home equity loan to handle them all?
Tricia,
I’m glad my comment was taken as intended 🙂
Just to be clear, there is a difference between THINKING and ACTING like a poor or wealthy person. I’m not suggesting you stop acting like a poor person. After all, you are economically poor at the present time. It would be insane to act like a wealthy person…spending tons of money, not saving for emergencies, etc. I totally agree that you need to act your wage (and in your case, “act your debt” too).
I was, however,suggesting that you keep moving your thoughts/brain toward thinking like a wealthy person. You’ve already done some of this. You’ve already started thinking for the long-term instead of the short-term. You’ve learned to delay gratification/pleasure for more of it in the future. You are thinking of leaving a better financial legacy for your son. You are doing more than just living in the moment. You generally do not spend more than you earn. You have stopped living from crisis to crisis as much. All of this is more “wealthy person” thinking. The remaining “poor person” thoughts I was referring to are the tendency to live your life on terms dictated by financial institutions to the point of exhaustion by jumping through their hoops, planning your life around a credit score based on a fear that you will always need credit, making financial choices now as if you will always need to be dependent on credit to some extent, and not understanding all of the viable options available (such as not needing a FICO score to be okay) once you have wealth.
I hope you decimate those credit card balances soon! I vote for 2008 🙂
Trica,
One other thought – In some of your posts you refer to the fact that you have a credit monitoring service. Do you pay for this? If yes, a great way to save money and reduce debt is to cancel that service asap and put the money saved toward debt reduction. Those services are a rip off. They “monitor” your credit. You can do that yourself for free. As I’m sure you know, the government passed a law allowing consumers to check their credit for free from each of the bureaus one time a year. So, every 4 months you can pull your credit from 1 of the 3 companies, therefore checking your credit 3 times a year all for free. If something is wrong, you can dispute it. Also, if there is crazy activity on your accounts, the company will usually notify you. And regardless, you are never responsible for unauthorized activity on your accounts. Finally, few people realize that there is little value in just having your credit monitored. Again, you can do that for free. The real time and trouble comes when you have to fix/repair your credit after someone has stolen your ID or something like that. It can take hundreds of hours to fix the mess they create. There is 1 company I’ve heard of that actually monitors your credit AND does the work of fixing it if your identity is stolen or anything else happens. I still do not wish to pay for such a service, but at least it brings a real value to this type of insurance.
Hi Tricia,
First of all, I’m with you on the low percentage rate credit cards. Go for it! Wealthy people don’t get that way by disregarding the details.
Secondly, try Citi (if you haven’t already.) I don’t know if you want to go this route, but I have 2 at-home businesses and was able to get 0% credit cards for each with free BTs…. No ill effects on the company (as all the money goes to/comes from the same place anyway.)
As ever, good luck. If you’re not thinking intellegently and responsibly, I don’t know who is!
One other suggestion if you haven’t already tried it. Did you tell your current card companies that you would be paying off the balance in full if they didn’t lower your rate? That might make it more worth their while to give you a lower rate. Sometimes they just think that there is nothing the person will do about it.
Dustin – a home equity loan is out of the question. We have very little equity in our home since our mortgage is fairly new and it is not a good seller’s market in my area.
bella – I do have credit monitoring service on myself. I was going to cancel it, but decided to keep it going because of this blog.
Kim L. – I did try, but they wouldn’t budge. Their favorite answer for me is that I do not have a lower rate available at this time.