I got real with myself, and looked at my credit card balance and my budget. After I got over my shock and realized I was in the red, I set to work creating some solutions.
I am not a big spender. In fact, some of the most common ways of cutting expenses wouldn’t work in my case. I had already put them in place years before. I don’t have cable (I watch Netflix and have an antenna for the local channels). I’m careful about my electrical use, use a drop-off service for my garbage (and I compost and recycle, which reduces the weight and fee for the garbage), and many other things. I have lived within my means – or so I thought, until I really looked at my money.
The glaring light in my eyes was – is – from my credit card. I’m not maxed out by any means. I told you, I’m not a big spender. But I have used my credit card without thought. I had one credit card with an $11,000 balance, and two others with zero balances. It doesn’t seem like much, but when you look at my low income, a $350 truck lease, property taxes on the house as well as undeveloped land in another state, and regular household expenses, it puts me over the edge and into the “no way will we loan this girl money” category.
I decided to keep freelancing. It’s in my blood. But I knew I had to kick it in gear to find more solid clients, and find to find other jobs to supplement my income (at the time I had no other income besides my writing and communication business). The universe immediately answered my intention – I received a phone call asking me to return to a before and after childcare position I had a few years before. A raise came along with the 20 hour per week position. I accepted, but I knew I couldn’t stop there. The credit card bill looked guilty.
I called the credit card company and asked for a reduction in my interest charges. I explained that I was a long-time customer with no late payments, and I wanted to reduce my bill as quickly as possible. The customer service agent said he could not offer a change in the interest rate – but he could increase my credit line.
Increase my credit line? Why would I want that? I didn’t want to spend more – I wanted to save more! Granted, a credit line increase would help me get a better credit utilization ratio, and possibly help my credit score. But at this point, that wasn’t my goal. I wanted to lower the balance on my bill. I thanked him and hung up.
Zero is My Hero
I checked out my other two credit cards, and found that they both had offers for balance transfers. My credit limit was not as high on the two cards, so I split the original total between the two. The first card offered two options – the first was a 0% interest rate for 12 months with a 3% transfer fee. The second offered a 4.99% interest rate for 21 months, with no balance transfer fee. After calculating both options, I found that the second offer saved me more money than going with the 0% interest option and paying a transfer fee. My plan was to clear the total in 12 months, so I calculated what I needed to pay each month in order to do so, and made a commitment to pay that amount each month.
I then transferred the remainder to the second card, at 0% interest over 12 months. I had no choices on this card – I was only offered the 0% interest plus a transfer fee. By making the two transfers I will be able to make a payment that is $46 less per month for the 12 month period, and will save more than $650 in interest!
But I made a mistake. I did not transfer some pending items from the original card, so the card holds a remainder. It’s the smallest amount of the three cards, and the highest interest rate, so I decided to pay it off first and use the $46 dollar savings toward the principal until it is paid off. I will pay the calculated amount on the credit card carrying 0% interest over 12 months, and the minimum on the card carrying 4.99% interest over 21 months. In a few months when the original card is paid off, I will begin the calculated payment on the latter. I would have made it much easier for myself if I had made sure I had all the pending charges factored in. Lesson learned!
A New Plan
The down side to doing this is that credit score will feel a nudge until the cards are below the suggested 30% credit utilization ratio. I think I can live with that for the time being.
Eventually, I will use the third card to charge purchases and even make money -but to keep myself aware, I am using cash for my purchases. No bottomless credit card!
To summarize, my actions toward financial freedom this week were these:
- I faced the music – on my income and my expenses.
- I called the credit card company and asked for a reduction in interest charges.
- When they refused, I went on to Plan B, calculating the best way (for me) to transfer the balance to other existing credit cards offering a low interest balance transfer.
- I created a budget plan to pay off the credit card bills in 12 months. I know exactly what I need to pay each month to each credit card.
Now I have a plan to pay off my credit card bill. And that is just the beginning of the path to financial freedom. Please feel free to share your own journey or offer tips and advice in the comments section!