October 05, 2017
Digging out from the losses incurred when a natural disaster strikes can take time. Waiting for insurance claims to be processed, or emergency aid to be disbursed can take weeks, or longer. Meanwhile households have bills to pay, and the financial strain of needing to replace so much right now just to get back to functioning.
If you don’t have an emergency fund to tap, I want you to be the smartest borrower you can be. I totally understand that it may be unavoidable for many of you to temporarily run up credit card bills you can’t afford to pay off at the end of the month.
That’s okay. No blame, no shame in doing what you need to do to provide the basic needs for your family.
But let’s make sure that you will pay the least interest possible.
Lean on Your Current Cards. If you have a FICO credit score of 740 or higher, you have some bargaining power to ask for your interest rate to be reduced. Your card issuer might be willing to listen to you, rather than lose your business. Call up customer service, explain that you are an area hit by one of the recent disasters—it’s easily confirmable by your zip code—and that you want your interest rate reduced to zero for the next year. Yep, ask for zero. As I will explain in the next section, there are card offers today that do not charge interest for the first year or longer. That’s the deal you want your current card to offer you. This will likely entail being transferred to a supervisor. Be patient. If you are turned down, politely convey that you intend to apply to a new card that will bring you relief over the next year as you put your life back together, and when you are approved you will be taking your business there.
Search for Zero Rate Deals for Current Purchases. Type “zero rate credit card offers” into your browser and you will soon see there are indeed major cards offering deals that are great at any time, but can be especially great for those of you facing some big spending in the coming months. For instance, as I write this in late September 2017, the Citi Simplicity Card offers new qualified applicants 21 months of interest-free charges. Chase Slate card, Chase Freedom and BankAmericard charge 0% interest for the first 15 months.
Already Run up a Big Balance? Get a Free Balance Transfer. There are also card deals that waive the fee to transfer a balance to their card, and then charge zero interest on the transfer for more than a year. Not having to pay a balance transfer fee is seriously great; the charge can typically be as much as 3% to 5% of your transfer total.
If you qualify for a zero-fee/zero-rate balance transfer—and to be clear, a FICO score of more than 740 might be needed—you have an absolutely free way to get your high-cost debt moved to a card that is going to give you a year or more of no interest. The Chase Slate card, BankAmericard, and Barclaycard Ring MasterCard do not currently charge a balance transfer fee and new purchases pay zero interest for the first 15 months.
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.