Wednesday, October 8, 2008

Playing the Credit Card game

You know the credit card companies are NOT your friend, right? They're not there to make your life easier or more fulfilled or to make all of your dreams come true. They're in business to make as much money off you as they can. And they will take every opportunity to stick it to you so they can increase their profit margin.

We've learned this lesson the hard way as we've had interest rates skyrocket with one late payment or just because they reviewed our credit report and saw the total amount of debt we had. Two examples: one card had a 3.99% fixed-until-paid-off rate, but we had one late payment and they changed our rate to 34.99%. Holy crap! Needless to say, we moved that bad boy to the top of our debt snowball and used our tax return to pay it off completely. Another example was a card that had a 9.99% interest rate, but when the company did their periodic review of our credit report, they decided to ream us because we had a high debt balance. The rate jumped to 28.99%. These rate increases have increased our debt balance by several hundred dollars every month because of the higher finance charges.

How do you begin to dig yourself out of the credit card hole? There is no other solution than to start by cutting up the cards. You will never get anywhere if you keep the card for "emergencies" or you'll end up buying that pair of jeans you "just have to have." You MUST learn to live only on what you make. Only spend cash or what's in your checking account. For a society that treats credit cards as a part of life, something everyone has and uses, it's takes a couple of months of anxiety to get used to this new system. It's hard to let that go of what feels like a security blanket, but now, a year after acquiring no new debt, I feel SO much more financially secure.

Another thing I had to do to start getting a grip on our debt was to make a Bill Due Date list. I can't tell you how many times I accidentally overlooked a payment by a day, or I planned to pay it on the due date, but didn't make the 1:00pm cutoff for online payments. On my Bill Due Date list I put the due date for credit cards (or any other bill that will punish me for a late payment) 2 days before they're actually due, that way if I forget to check the list for a day or two, I have a little cushion. This simple Word document has really kept me on track. I used to just keep the bills in a stack with the due date written on the front of the envelope, but I'd forget to check the stack for several days or I wouldn't even open my mail for a week. Now, with my list, I love the satisfaction of putting a check mark next to each bill. Cheesy, but it works for me.

Lastly, I cannot stress the importance of making a budget every month and actually sticking to it. The easiest way for us to accomplish this has been to use cash envelopes for everything that is not a payment to be made to someone. So rent, credit card payments, utilities, doctor bills, etc. we pay out of our checking account. But everything else like groceries, entertainment, gas, clothes, babysitting, toiletries, etc. comes from cash envelopes that we get out of the bank at the beginning of the month. I can testify that this definitely cuts your spending because you can visually see when funds are getting low and you have to control yourself and not buy things you don't have money for. We got off our cash envelopes during August and September because of the move (lots of new household expenses) and Dan's accident (we didn't know how much income we'd have so we decided to just use our debit card and transfer from savings as needed.) Well, that definitely reflected in the bottom line. We went way over budget on some things. So for October, we're going back to cash envelopes as soon as Dan's check comes in a couple of days.

I've kinda gone off on a tangent. The reason I originally started this post was to tell you how negotiating and persistence can pay off in the credit card game. You'll often hear people encourage you to do balance transfers to get lower interest rates. Get a 0% interest promotional rate, and when the rate goes up, just switch to another card. We did this for awhile, but there comes a point when you have so much debt that the credit card companies stop even offering this to you. Or if they do, it's only for a small credit limit of $1500.00 or something. And when you have as much debt as we do, that just doesn't even begin to make a dent in it.

You know the card I told you about that went from 3.99% to 34.99% and we paid it off? Dan wanted me to close it, but I decided to keep it open to see if they would make us some great balance transfer offer. Since the card was cut up, I didn't worry about accumulating more debt just by keeping the account active. Citicards made a few attempts to get us to put something on the card, but none of the offers were that great. Then finally, 6 months after the account having a $0 balance, they offered us a 4.99% fixed-until-paid-in-full rate on balance transfers, up to our full credit limit. I got excited, thinking I'd like to get rid of that 28.99% card that was killing us on finance charges.

But, drat! That card was also through Citicards and you can't transfer a balance from the same institution. I almost just forgot about the balance transfer, but then realized maybe I could strike up a deal. I had been calling on that 28.99% card every couple of months to see if they would lower the interest rate, but they wouldn't. So I called today and told them I was interested in doing a large balance transfer with the 4.99% fixed offer, but only if they would lower the interest rate on the other card to 12% or lower. Wouldn't you know, they reviewed my high interest rate account and found that I "qualified" for a 12.99% interest rate. Funny how acquiring more of my money in new debt made me suddenly "eligible" for a lower interest rate on the other card. Just goes to show you that they're not there to help you out, they're there to make money.

The bottom line is that the change will save us at least a couple hundred dollars a month in finance charges and will decrease our payments remaining by about 18 months. It's so easy to get frustrated with credit card companies, but if you start doing the smart thing (cut up the cards and hammer away on the payments) you can start negotiating much better terms.

Mostly I just wanted to brag that I finally won one with the credit card companies today. Yay me!


Pilch Construction said...

34.99% interest! I can't even imagine. Good work on your persistence in getting your rate lowered. That will make a huge difference. We've gotten rid of all of our cards, even the emergency one because credit cards really are horrible. And paying cash for everything is great. It's amazing how much more cash you actually have when all of it isn't going towards interest and late fees. Keep up the good work on your debt diet, it sounds like you'll be rid of it in no time!

The Queen Vee said...

You've learned a valuable lesson a very hard way. Keep paying down that will be a very exciting the day when you are no longer in bondage.

And keep paying cash you're doing a great job and helping others along the way.

Lizzy Lou said...

You are my hero.....Where have you been for the past twenty years. I have no brain power for money. That's no secret!! And you have helped me get a handle on what goes out has to come in first. Dahhhh! I have not had a credit card now for six years. But there is alot of other ways to mismanage cash flow. Thanks for your on going lessons on good spending behavior...I love you!

the Grammie Lois Ann said...

I continue to be so proud of you and Dan and your getting a handle on your money. You are the best Dave Ramsey Poster Children that I know. I do believe it is catching....

I love you both... well and the darlig girls and Mystery Boy too.

Love, The Grammie

Brandee said...

People should read this.