January 17, 2019
As much as I wish that no one overspent during the holidays, I know that many of you are facing January credit card statements that are going to set off some stress. You realize there’s no way you can pay off the balance, or what you spent during the holidays is going to painfully add to an already troubling unpaid balance.
You can give up and do nothing. Or, you can be the warrior I know you are and go into battle.
Right now, plotting a way to work to work down your credit card debt is extra important. The average interest rate charged on accounts that are not paid off in full is more than 16%. That’s the highest it’s been in 20 years, and could move even higher in 2019 based on how things play out in the economy.
This is the time to hatch a winning plan for paying down credit card debt.
Repeat After Me: Needs Only. No Wants. The first step is to stop digging an even bigger hole. That means using your credit card only for necessary expenses. Groceries. Medical bills. No retail therapy. No “I deserve this” or “my kids deserve this.” Here’s what you really deserve: being out of financial bondage. And credit card debt is the worst type of financial bondage given the high interest rate.
Challenge the Family to Come Up with $100 More a Month in Savings. Or $200. Or $300. Pull up your last few months of bank and credit card statements. Add up every expense that was a want, not a need. I bet this will be eye opening. Now ask yourself: can I eliminate some expenses? Are there other expenses I can reduce? Do that across dozens of spending choices and you will find you can save a serious chunk of money every month. That is money that can go toward paying down your credit card debt.
Consider a Balance Transfer. If your FICO credit score is at least 720 you may be able to qualify for a good credit card balance transfer deal. With a balance transfer, you move your existing credit card balance to a new card that gives you a period of time where you will owe no interest on that money. Any new purchases that you don’t pay off will be charged interest.
The zero-interest period can be more than year, and some credit card balance transfer offers will let you make the move for free. Even if you have to pay a fee to initiate a balance transfer–it can be 3% or so of the amount transferred–it can still be worth it. Having a year, or more, where your balance won’t be charged any interest is a lot better than trying to tackle your debt while it is being hit with a 16% or higher annual interest charge.
A quick online search of “best credit card transfer deals” will give you some solid leads on cards you may qualify for. Read the fine print and be extra, extra careful. For instance, if you are late with a payment, you may lose your zero-rate deal. And understand what happens if you still have a balance after the zero-rate period expires. Your goal is to get your balance down to zero before that happens. Knowing the high interest rate you will be charged if you don’t achieve that goal might be good motivation to work extra hard to use your grace period to get out of credit card debt.
Answer Yes or No to the follow statements.
I pay all my credit card bills in full each month.
I have an eight-month emergency savings fund separate from my checking or other bank accounts.
The car I am driving was paid for with cash, or a loan that was no more than three years, and I sure didn’t lease!
I am contributing at least 10% of my gross salary to a retirement plan at work, or I am saving at least that much in an IRA and/or regular taxable account.
I have a long-term asset allocation plan for my retirement investments, and once a year I check to see if I need to do any rebalancing to stay on target with my allocation goals.
I have term life insurance to provide protection to those who are dependent on my income.
I have a will, a trust, an advance directive (living will), and have appointed someone to be my health care proxy.
So how did you do?
If you answered yes to every item, congratulations. If you are working on improving on a few items, I say congratulations as well.
As long as you are comitted to truly creating financial security, I applaud you. If that means you are paying down your credit card balances, or are building up your emergency fun with automated payments, that’s more than fine. You are on your way!
But if you found yourself saying No to any of those questions, and you’re not working on moving to Yes, then I want you to stand in your truth. No matter how good you feel, you have some work to do before you can honestly know what you are on solid financial ground.