Category Archives: Credit Card Management

FINANCIAL FITNESS BOOTCAMP WEEK 9: MAMA SAID KNOCK YOU OUT… CREDIT CARD DEBT, THAT IS

As we gear up for the Labor Day weekend, let me finish Part 2 of “Charge Now, Pay Later: Overcoming Debt.” As I stated last week, I know everyone may not have the option to withdraw/borrow from retirement plans or even borrow against the equity in their homes, but never fear….

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WEEK 9: MAMA SAID KNOCK YOU OUT…. CREDIT CARD DEBT, THAT IS.

People that know me know not only am I a huge football fan, but a huge fan of boxing as well so what better way to illustrate getting rid of credit card debt than with a boxing analogy. At face value boxing looks like a no-brainer (no pun intended.) One would think the goal is to knock your opponent out as early as possible. Pretty cut and dried right? Not quite. Boxing requires skill and it requires quick thinking. The old “bob and weave” routine may not always work if your opponent is good at anticipating your moves. A boxer’s opponent is watching his eyes, he’s paying attention to his boxing stance. One boxer may have an orthodox stance, another may have a southpaw stance and still another may be able to switch up between the two. Unless you outsmart and/or outbox your opponent, you may end up being the one down for the count. The same applies to “the bout” you’re about to have with credit card debt. And credit card debt WILL NOT be your sparring partner. This isn’t practice, this is the “Real Deal” Holyfield (if you know a little bit about boxing, you understand the lingo.) If not, look it up. There’s nothing wrong with learning new information. You can still overcome credit card debt but once again, this will take some sacrifice on your part and you may be in for a real fight. Don’t underestimate knocking out credit card debt the way some boxers may underestimate their opponent because they’ve been labeled the underdog. Underdogs have been known to upset champions. We see it all the time. Not just in the game of sports, but in the game of life.

By now you should have long tracked your spending and found ways to cut costs. Here are links to a couple of prior posts you may want to reference.

WEEK 2: KNOW WHERE YOUR MONEY IS GOING: https://wordpress.com/post/96150968/19/

WEEK 3: IT’S TIME TO TRIM THE FAT: https://wordpress.com/post/96150968/22/

The extra money you found can be used to pay off credit card debt. Here’s the best “ONE, TWO PUNCH” I recommend for “knocking out” credit card debt:

  1. Start with the credit card that has the LOWEST balance. Others may suggest starting with the card that has the highest finance charge rate however, paying off the card with the lowest balance FIRST gives you a sense of accomplishment when you make that final payment.
  2. Use the “Domino Effect” to pay off the next card and so on and so forth. The “Domino Effect” is simply taking the monthly amount used to pay off the FIRST credit card balance and apply it to the amount being paid on the SECOND credit card, the THIRD and… hopefully you don’t have more than three major credit cards. The goal is to pay larger monthly amounts with each card until you have paid them all IN FULL.

Depending on your credit card balances, the process can take a few months or a few years. Think of boxing. Some fights end within the first few rounds, while others go the 12-round distance. How aggressively you attack your credit card debt, as a boxer attacks his opponent, is strictly up to you. Once your credit card balance is paid in full, you can move to other areas of debt such as student loans, car loans and even mortgages (if applicable.) The satisfaction of saying “I have no credit card debt,” is one of the best feelings in the world, especially if that debt was causing unnecessary stress and anxiety. You did it, you stayed the course. VICTORY OVER CREDIT CARD DEBT BELONGS TO YOU!

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So there you have it. A simple one, two step plan to overcome credit card debt. I know. It’s easier said than done, but the moment you become sick and tired of being sick and tired, is the moment you take action. The question you must ask of yourself is “Am I sick and tired of being sick and tired?” When you are, you won’t have to ask the question. You’ll already know.

I hope you benefitted from this posting and as always, I greatly appreciate you reading it. Feel free to SHARE. Your commentary is always important so ALL FEEDBACK IS WELCOMED. If there is a specific topic you’d like me to talk about regarding “Financial Fitness Boot Camp” on this blog, feel free to shoot me an email at Andrea.Coleman@TheFinancialHack.com. Don’t miss a posting so be sure to follow me at http://www.thefinancialhack.com.

FOLLOW THIS BLOG AND/OR JOIN THE EMAIL LIST SO YOU DON’T MISS A POST.

HAPPY LABOR DAY!

~The Financial Hack ©2015

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FINANCIAL FITNESS BOOT CAMP: WEEK 8 CHARGE NOW…. PAY LATER: HOW I OVERCAME CREDIT CARD DEBT

A couple of you may have been looking for and wondering why there was no posting last week. Simply put, I allowed distractions to get me off task. My lack of focus made it impossible to blog. It wasn’t because I was tired or didn’t have anything to say. I allowed “outside noise” to drown out my internal thoughts. Thank God I’m back on track. Hopefully the “Daily Motivation” postings encouraged you and kept you focused in the interim. Each day is a work in progress for me because there is always a personal/spiritual/professional/financial goal I’m striving to reach. Currently, I’ve set a goal to save a SPECIFIC amount of money over the course of this next year. As a constant reminder of my goal, I’ve written that amount on a piece of paper, taped it to my bathroom mirror and each time the amount increases (i.e. a deposit is made,) I record the date and the adjusted amount. Recording the date helps me track possible patterns in saving.

But it wasn’t always this way. At one point in my life, I wasn’t able to save because (in the words of my younger cousin Bobby,) “I made just enough money to “stay broke.”” That’s certainly what it felt like. This didn’t mean I didn’t make enough money to fulfill my obligations. I simply wasn’t financially mature enough to modify my spending habits. I was still shopping, going on trips (and everything else under the sun) and using credit card(s) when I didn’t have the money. The bills were paid on time every month but without an emergency fund or some type of savings in place, ONE monthly setback could set me back THREE months. For example. What happened if my car was in need of repair? Where would the money come from? My quick fix? I simply incorporated the “Rob Peter To Pay Paul Principle.” I’m sure you guys have heard of it. If you’re honest with yourself, some of you have done it. And if you’re brutally honest with yourself, you’re doing it now. The “Rob Peter To Pay Paul Principle” is sacrificing paying one bill and/or bills to take care of another. This principle worked a few months for me, but eventually imploded in my face.

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Let me explain further….

STEP 8: CHARGE NOW…. PAY LATER: HOW I OVERCAME CREDIT CARD DEBT

I was never taught how to use credit responsibly. By the time I entered college, the only advice given to me regarding credit (credit cards in particular) was, “DON’T GET ‘EM!!! DON”T USE EM!!!” That came from both my mother and father. They were the traditional “old school” types who believed in cash and carry. But how could a broke freshman pass up the opportunity to get a free college t-shirt just for “signing up?” Before I knew it, I had THREE FREE T-SHIRTS and was issued TWO CREDIT CARDS with a credit limit of $500 each. Now how did this credit thing work again?

I was responsible with the charges I made but not responsible with how I made the payments. I thought I could make payments at my discretion as long as the balance didn’t exceed the credit limit. That’s the way credit cards work. Right?

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One day (at the mall of course,) a purchase for a pair of shoes was declined. I gave the salesperson my other card. Declined as well. I didn’t understand why. I hadn’t gone over my limit, so why were the cards being declined? The salesperson suggested I contact the credit card company. After sifting through unopened mail, I found a statement and proceeded to contact them. Not only had I not paid in three months, but my balance exceeded the credit limit. What? How could this be? APR? Finance charges? What is that? Late fees? For what? The Customer Service Representative I spoke to was kind enough to explain the abbreviated version of Credit Card Management For Dummies to me. (Hmmm. I like that. I’ll file that in my mental mailbox and blog about Credit Card Management for Dummies in a future post.) Long story short, Mom to the rescue. She paid the balances on the cards provided I close the accounts. Those were her terms and in my case, the one with the money calls the shots. Fast forward to my ADULT adult years. I’m well out of college with two degrees, still couldn’t manage my credit card debt and in my late 30s. By this time, I had knowledge of credit cards and how they worked, making timely payments etc., but the temptation to spend spend spend when one bank is offering you a $15K line of credit and another a $10K line of credit was too great. There’s a little way banks can really “stick it to you” if you’re not careful. I’ll give you two words: CASH ADVANCE (which yield HIGHER interest rates than making regular purchases.) When I was going through my “Keep Up With The Joneses” phase, where I had to have the Mercedes Benz, the larger home, and designer handbags to feel validated, those 3-4 little checks the bank would send with my monthly statements came right on time. The next thing I knew, the balance on one credit card was near maxed out, and I was working on maxing out the second card. What to do? Back then, the minimum payment on the TWO credit cards combined at the time totaled half of the mortgage on my home.  Plus I also had a car payment on my truck. There was no way I was going to ask my parents. I made my bed, now it was time to lie in it. I had credit card debt in excess of $20K. My credit was shot as my debt to income ratio was so high, there was no way a creditor/lender would extend another dime of credit to me for anything. There was the constant anxiety and worry. Anger and irritability. Sleepless nights. Dreams of falling then waking up in cold sweats. Worry that I’d have to sell my investment properties, face foreclosure and file for bankruptcy. Thinking of it as I type now makes me anxious. That’s a place I never want to visit again.

YEAH YEAH YEAH. WE GET IT. YOU WERE DROWNING IN CREDIT CARD DEBT. SO HOW DID YOU OVERCOME IT? I know this is what you guys want to know. I had to set the scene in order to illustrate how the CHARGE NOW….PAY LATER way of thinking caught up to me.

Here’s how I did it: I “settled” with the two credit card companies. 

“Settling” with a credit card company means you agree to pay the credit card company (i.e. bank) an amount LESS than the current balance on your credit card. The bank will in turn close the account and send you a 1099 (which you MUST declare as income during the tax filing year.) The banks will usually try to work with you on a settlement amount. For them, It’s better to get SOME of the money back, than no money at all. Here was my settlement break down:

Credit Card 1: Balance $15,000 (apprx) Settlement Amount: $7,500.

Credit Card 2: Balance $8,000 (apprx) Settlement Amount: $3,000.

The bank refused to accept any thing less than half the balance on Credit Card #1. For Credit Card #2 I told the bank $3000 was all I had to settle with. They accepted what I offered.

IF YOU SETTLED FOR APPROXIMATELY $10K AND PREVIOUSLY STATED YOU HAD NO SAVINGS, HOW WERE YOU ABLE TO PAY? Answer: I was forced to tap into my IRA and take the hit (penalty) for a partial withdrawal. Some of you may have been in the workforce long enough to have a retirement account saved up. If so, you can take a partial withdrawal from your retirement account (if allowable) or take out a loan against it, which of course will have to be repaid. It may not sound attractive, but it’ll get the “monkey” off your back. The downside. My credit score would suffer, but who cares! It was beyond insufferable anyway. But wait. there was a silver lining to this credit card debacle. A THIRD credit card which I rarely used. Let’s just call it a “rainy day” card. It had a pretty sizeable credit limit like the others so if push came to shove, it was there to use. Or so I thought. That lone credit card that once had a limit in upwards of $10K had been reduced to $2000. Couple that with my POOR credit rating at the time, and that was just the motivation I needed to become more responsible when it came to my finances. I was sick and tired of being sick and tired.

My father’s ever so redundant line when it comes to credit cards, “If you have to use a credit card to buy it, you can’t afford it,” still resonates with me today. That may make sense to him, but I would tweak that line just a bit. “If you can’t pay your credit card balance in full when you get the bill, you MAY NOT be able to afford it.” I like my wording better. Less harsh and more accurate. Everyone’s “financial collage” is different and no two collages will ever look exactly the same. Today I still have the one credit card and although the bank has been gracious to increase its limit (enticing me to use it no doubt,) the only action it gets is the random fill up at the gas station and the occasional dinner with me of course paying the balance in full at the end of the month.

This happened at age 40. I am now 44. And I’ve come a LONG WAY in four years. It only took about a year and a half of strictly managing my finances responsibly to INCREASE my credit score rating from POOR to GOOD. And you can do it too. Even if you don’t have a retirement account, you can still eliminate credit card debt. Look for tips in next weeks blog posting.

I hope you benefitted from this posting and I do appreciate you reading it.Your commentary is always important so ALL FEEDBACK IS WELCOMED. If there is a specific topic you’d like me to talk about regarding “Financial Fitness Boot Camp” on this blog, feel free to shoot me an email at Andrea.Coleman@TheFinancialHack.com. Don’t miss a posting so be sure to follow me at http://www.thefinancialhack.com.

FOLLOW THIS BLOG AND JOIN THE EMAIL LIST SO YOU DON’T MISS A POST.

~The Financial Hack ©2015