I’ve Paid For This Twice Already…

Archive for the ‘credit cards’ Category

And really, in the grand scheme of things, that just leaves you exactly where you started - and just maybe even a little better.

This week, Watch My Money Maker is heading the Credit Card Rate Reduction Rally. His mission is to use this week to educate consumers about credit card interest rate reduction and how they can benefit. My part in that is to simply say - you never know until you ask, and the worst they can say is no.

For a long time, I thought that there was no point in calling my credit card company to ask for a rate reduction, because they would never do it and it was wasted effort. And, I charged things knowing what the interest rate was, so why would they reduce it? There was no incentive (that I could think of in my head) for the credit card company to do anything for me.

But my thinking was shortsighted on several levels. First, my credit card company does not exist in a vaccuum. I may not have been thinking outside the box and realizing I could find another credit card who’d give me a better rate, but the credit card company can’t count on that. There is fierce competition for customers among credit card companies, and in many cases they’d rather I paid them a little less interest and kept paying them, versus going to a completely different company. This is especially true if you have a decent credit score and the credit card company knows you have options.

The other aspect I didn’t consider has little to do with the credit card company and everything to do with the domino effect being assertive in this manner could have on my life. Once I finally did call to ask for a lower interest rate, I felt empowered. Even though my actual rate reduction was small (1%), it was a rate reduction and it did save me some money every month. And the offshoot of that was, I became increasingly more proactive about other aspects of my life as well as my credit card debt. I applied for a credit card with a 0% interest (with no fee) balance transfer offer, was approved, and moved all my credit card debt there. I am now $175.17 away from paying that off entirely, and my 0% interest does not end until this September. I also became much more of a comparison shopper for big purchases (for some reason, I already was with small purchases but took most major purchases at face value) and everything from new tires to a new engine for my car, I shopped around for the best deal and then my spouse and I used that as a bargaining chip to negotiate discounts. Even things as seemingly unrelated as asking a store clerk to give me a discount on slightly damaged merchandise I can directly attribute to the mindset change I underwent going through the process of talking to my credit card company and requesting an interest rate change. It really was a very empowering experience in my life.

I just got off the phone with Saturn, whom I emailed yesterday to file a complaint about my car’s engine dying, and they are looking into my complaint about the performance of my car and the death of the engine. I have a claim established, and by 6pm tonight, I will be notified if Saturn will be providing financial assistance in paying for the repairs. They may do nothing, or they may pay for the entire repair, or anything in between. I don’t know if a year ago I would have had the nerve to contact them and complain about my car, I probably would have just chalked the whole ordeal up to bad luck and moved on. Even if they decide to pay nothing, at least I gave it my best effort.

My becoming more assertive, starting with that call to my credit card, has really served me well.  Let it serve you well too. If you are paying interest on a credit card that you carry a balance on - call them today and ask for a reduction. You have nothing to lose and a potentially incredible amount to gain.

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As readers of the comments to my last post have learned, the car is not in good shape. I’m not exactly sure what happened to it to get it to this point, but to quote from my spouse’s email to me about what the Saturn dealer said:

Ugh, it’s the engine, I mean the whole engine. Something broke inside of it and pushed some crankshaft out so basically we need to rebuild it or buy a “new” engine.

My spouse did call me to tell me the news, but he also emailed what he remembered as far as details. So, the engine - dead. Cost of replacing it? Around $3700. I said $3500 before but that was my brain doing some self-preserving rounding trick on the numbers, I guess. Plus there are any random incidentals like the tow to the shop so the total will be above $3700 if we go this route, but I am going to just use that number right now for simplicity’s sake.

So again, back to the “options”. We could buy a new (to us) car instead of fixing this one. It is something I am sorely tempted to do, but as far as our overall budget and debt load, an option I don’t think I am comfortable with. We still owe ~$3300 on this car, and we’d have to roll that into our next car’s payment. We don’t currently have the money to pay off this car and buy a new car and pay it all in cash. At all. I have to think on this option more. I’m not sure how comfortable I am buying a car that is more than a few years old and having a payment on it still. This car is 7 years old, so I don’t know why my brain thinks like this, but all I can wrap my head around is buying a 3 year old car for $10-12,000, not buying a different ~7 year old car for a lot less. How much less? I have no idea. At this point I’m babbling so I’ll move on to other options. I haven’t discarded this idea but I’m not leaning towards it either right now. Ask me again in three hours and I might feel differently. I do think a $3700 car repair might qualify as “driving the car into the ground”, though.

We’ve done some research on possible other places to take it to get it fixed (we’d have to tow it there of course) and my spouse is currently calling around to see what our options are on that front. I honestly have no idea how that will pan out. I’ll know better later this afternoon.

So, that leaves us looking at - what if the $3700 number is what we are left dealing with? The Saturn dealer offers financing. Yes, the evil of financing. I would generally reject that out of hand, but they do offer 90 days same as cash so if we took advantage of that, it would give me a little time to gather up as much money as I possibly could. My thoughts on that is to pay $1000 immediately and put the other $2700 on the 90 days same as cash plan. Then when my transfers out of the ING subaccounts go through as well as my spouse gets paid again (within the next week and a bit), I pay another $1000. Then I will have about 80 days to come up with the other $1700. I would snowflake anything I get my hands on for the next two months directly to that $1700 and if it doesn’t completely get paid off, I can decide then if I want to pull the remainder from college savings accounts or if I want to balance transfer the remainder to one of my two empty credit cards.

Hello setback.

And that begs the question - what if another emergency happens in the next 90 days? Honestly that’s something that I can’t completely wrap my head around but obviously is a very real possibility. Paying everything possible to this debt before rebuilding the emergency fund leaves us open to another disaster as well. At this point, I genuinely can say I am just trying the best I can to not let this become the beginning to a huge downward spiral. And everything else aside, I am trying the best I can to figure out how to minimize the damage to our finances and maximize our options so that we turn this around as fast as possible. That may necessitate revising the above to rebuilding the $1000 emergency fund before paying off the remaining $1700, if we go that route. I don’t know yet. Still… thinking.

The destruction of my spouse’s student loan will have to wait. The $175.17 left on the 0% credit card will have to wait. We’ll get through this, whatever we decide to do. And whatever that is, for the first time since I started the blog, that debt number is going to up this month instead of down. Sigh. And I will definitely keep you posted. Your thoughts and comments are welcome, my brain, still in shock.

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When our debit card was rejected at the start of our trip to visit relatives last week, my spouse and I realized that we don’t really have a backup plan for something like that. And when my car completely died on Wednesday and we had no idea how expensive the repair bills would be (still no idea… hopefully find out today), we realized that we don’t have a concrete backup plan for an emergency that is potentially over $1000 either. However, because we have been focusing on improving our financial situation in the past months, in both cases we had options to consider and it was possible to create one on the fly.

In the case of the malfunctioning debit card, we knew we could use our debit card at our bank’s ATMs but not at any other places until the problem was fixed - and there was no timeframe on how long the problem would take to resolve, just “sometime that day”. So we had a few options. We brainstormed in the car the following ideas:

• We could go to an ATM and take out more cash to cover all expenses for that day.
• We could wait to buy gas, and when we needed to stop, hope the problem was resolved and if it was not, use the cash we had to buy gas.
• If we went with the wait and see option, if it was not resolved by the next time we needed gas, we would have to use a credit card to cover expenses.

We didn’t really like the go get more cash option because we weren’t sure where an ATM for our bank was and we didn’t want to waste a lot of time getting off at every exit and checking around to see if we could find one. So we decided to go with the wait and see approach. We knew we had enough money to cover completely filling our gas tank once, plus tolls and food. Because we had transferred the balance on our Capital One card to a 0% offer on a Citicard, we had our Capital One card completely empty and could, if we really needed to, use it for gas and pay it electronically later that evening for the charges well before any interest would be assessed. It wasn’t our preferred plan, but it was definitely possible. And we were guessing that the debit card would work again before we had to use a credit card at all.

If the debit card might not work indefinitely, we would have looked for a branch of our bank or called our bank to get directions to the nearest branch. Using our credit card, even for just a short while and temporarily, was very low on the list of things I wanted to do. But we decided to run the risk because we were told that it would be a very short timeframe, and it did work out. By the time we needed to stop for gas the first time, our card worked again so we continued with our trip with no further incident on that front, and no credit card usage. We figured our bank (which is a large semi-national one) was being harassed by many many inconvenienced people and would solve the problem as fast as possible, and it turned out we were correct and it was resolved fairly quickly.

And then came the question of is a $1000 emergency fund sufficient. Well, I have never claimed that I thought it was completely sufficient, or that I planned on only having a $1000 emergency fund for the rest of our lives. But in the balance between paying down debt and protecting ourselves from more debt, we decided to have a $1000 emergency fund while we still had credit card debt. Once the credit card was paid off (and… that is so close I can actually feel it in my bones at this point), we were going to re-evaluate our emergency fund strategy and possibly change it while we are paying off our student loan. That time has come faster than we thought, and there will be more about our thinking on that next week. But for now - when you car dies, it seems serious, and you think it may be more than the $1000 emergency fund - what to do?

For us, we gathered up our financial statements and started brainstorming options. After transferring the remainder of the November extra paycheck into our checking account, we had approximately $550 available to start with. In our savings account, we had $1000, so we had $1550 available immediately (it only takes a minute to transfer the money from savings to checking) to deal with this problem. That would leave us incredibly tight until the 11th when my spouse gets paid, but it is doable.

But what if the repairs are more that $1550? Then we have to get creative. We have a number of ING subaccounts we can tap into. The first one we would hit is our “long term savings” account, which is slowly saving for things like a new furnace and water heater. That has $150 in it, and would be the first to go. Next is my spouse’s Playstation account. He has been saving his birthday money from the past year in this account and hoping to add it to this year’s birthday money and buy a Playstation 3. (Now before anyone attacks him over this, remember that he got a $1000 windfall and cheerfully put 90% of it towards debt and 10% of it into our kids college accounts, without saving a dime of it towards his Playstation. He doesn’t ask for much.) The Playstation fund has ~$150 in it (I was going to give him a $25 deposit for his Christmas present from me but haven’t yet because he wanted the credit card paid off first) and that would be next. So, we’ve raised our available total to $1850.

So the question is - if the repairs are significantly more than that, do we use a credit card, or hit the kids college accounts? And that’s where we are stuck. I do have some money in my “blog” account to cover taxes from my blog earnings, and I can tap into that as well although it would have to be replaced by tax time. But if the repairs are significantly more than the $1850 I’ve already outlined, something more is going to have to give.

So… credit card or borrow against the college accounts? Which is the lesser of two evils? I used to, back in the before the blog time, semi-regularly borrow against and pay back my son’s college account any time we had an emergency, and even though the money is technically “our” (my spouse and my) money that we put a college fund designation on in our heads, I hated how I felt about it and it stunk. Between the two kids, there is about $3000 available in the college funds. We’re still going back and forth about if we want to tap into that (with the first priority being replacing it) or use our empty Capital One card and prioritize paying off as much as possible before interest came due.

Hopefully we don’t have to decide between either of these options and the repairs are much less than the $1500 we can “comfortably” deal with. Not that a large amount of money like that will be at all comfortable, but it will just set back our plans, not semi-derail them.

And soon the emergency fund strategy will get an overhaul. Once we figure out if we still have an emergency fund, that is.

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I am not used to having any money that isn’t about to be spent. At all. Any.

I keep looking at the credit card balance and then my emergency savings account balance and thinking… hey, I could grab all that money from the savings account and smack down the debt with it and be almost completely done. Maybe we could scrape up some more money from somewhere and manage to have the entire thing paid off before the end of December. Start 2008 with no credit card debt! How awesome would that be?

But that is crazy talk. It is tempting, oh so tempting, but it is not in any way a good idea.

I know this. I believe it wholeheartedly. And yet I keep thinking about it.

And if it feels this tempting now, when the balance of the emergency savings fund is smaller than the balance on the credit card, how much more tempting will it be once the balance in savings exceeds the remaining credit card balance. I think very.

I know it is insanity. I know it is a bad idea. I know in my heart it is a very bad idea, for if a real emergency happens I will need that emergency fund.

But it is tempting. But foolish. And I am done being foolish with money.

I think.

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I’ve talked before about the attitude shifts that I’ve gone through in my quest to become debt free. The frugality by necessity, learning to budget and to assign every dollar a job, and losing my all or nothing attitude. But one of the things I haven’t really talked about is the shift from paying what I could “afford”, or basically, as little as I could to just get by, to paying as much as I possibly can. It really was an important transition in mindset when dealing with my debt that happened so gradually that I didn’t even realize it.

When I first started paying off my debt and stopped using credit card convenience checks to bail me out of jams, I started paying slightly more than my minimum payment. And I mean slightly. My minimum payment was $199 and I paid $200. This did actually work, every month my minimum went down a tiny bit, and I kept paying $200 every month.

This was a good thing. But it wasn’t quite good enough. I was paying more than the minimum, but I wasn’t paying as much as I possibly could. I basically treated the credit card debt like a monthly bill and adjusted for $200 in my monthly spending. It became predictable and stable and yes, it was better than paying just the minimum, but I never changed it. Not for more than two years. Our financial situation slowly changed for the better as my spouse moved up and got raises and I *talked* about how we should pay more to the credit card and get it gone, and once in a while I would pay a little bit more, but I really didn’t do it with any consistency or commitment. The credit card was just a $200 bill I paid every month.

So, last January or so I finally started making a more thoughtful and concerted commitment to getting out of debt once and for all. And one of the things that changed was that I started the process of snowflaking. At first, every time I saved money on something or spent less than I expected on something,I made an extra little payment to the credit card equal to those savings. When my son didn’t outgrow his shoes as fast as I expected, I snowflaked the cost of new shoes to my credit card. When I got a little money from taking surveys, I snowflaked money to the credit card.

And then I expanded this. I started paying extra to the credit card every time I bought something impulsive. If I bought something impulsively (with cash) for $10, I snowflaked $10 to debt as well. For if I could afford to waste my money frittering it away on a bunch of random stuff, surely I could afford to pay down my debt equally. And the credit card kept shrinking. Little by little, it built up momentum.

Enter the budget. Budgeting made it clear that not only could I “afford” to pay more to debt each month, but that I needed to if I ever wanted to get out of the living paycheck to paycheck cycle we are in. And that is where the true financial revolution picked up steam. Not only was I making small extra payments to debt when I earned extra income, I was also taking my “surplus” money at the end of each month and applying that directly to debt. And the snowflakes have become a snowball. It was a gradual process but truly, over the course of steadily paying down my credit card and other debts, my mindset went from “This is what I can afford to pay every month” to “Where can I find more to pay every month”.

And that change in and of itself has made everything else fall into place. And I didn’t even notice it happening.

What change in your financial behavior happened so gradually you didn’t realize it was happening, but you wouldn’t do without now?

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