First off, thanks a lot to whoever created this website and message board. Iâ??ve learned a lot over the past few weeks reading all of these posts. You guys are all very bright and definitely know what youâ??re talking about. I was wondering if anyone might be willing to offer me some advice regarding my current financial situation. I filed for chapter 7 BK almost 8 years ago. Since that time, Iâ??ve re-established my credit by leasing two new cars, buying one new car (with a bank loan), and getting unsecured major credit cards. The only derog on my credit report is the BK. Unfortunately, since my BK, Iâ??ve managed to rack up $10,000 in credit card debts. Except for a $1,500 computer, all of this credit card debt was for living expenses...dental bills, property taxes, car repairs, college tuition, some legal fees, etc...all over the past 6 years. Of my $10,000 credit card debt, 5K is at 19% and 5K is at 12%. Now for some good news. Citibank just approved me for a 9.7% Illumina MasterCard with a balance transfer offer of 0% for 12 months (5K credit line). Today, I transferred the 5K I currently have at 19% and closed that account. Citibank also just sent me an offer to apply for the AT&T Universal Card with a 0% balance transfer offer for 12 months. Hereâ??s where Iâ??m having a problem. Over the past few years, Iâ??ve been able to build up $5,000 in savings. I know it sounds stupid to be saving money at 2% when Iâ??m borrowing it on my cards at 19% but thatâ??s what Iâ??ve managed to do. I probably shouldâ??ve been using this money to pay for living expenses over the past 6 years instead of saving it or putting it on a credit card, but thatâ??s the situation Iâ??m in. Part of me would like to take my entire $5,000 savings balance and send it to pay off the 12% card in full. I would then be left with just $5K on the Illumina card at 0% (I could very likely pay this off in under 12 months). But, part of me wants to preserve my savings, considering how bad the economy and job market are these days. If I can get approved for the AT&T Universal Card with a 5K limit, I might do a balance transfer instead of using my savings to pay off the 12% card. It would probably take me close to 18 months (perhaps 24 months) to pay off $10,000 in credit card debt at 0% for a year and then 9.74% after that (prime plus 4.99). Has anybody on this board ever faced a similar situation (trying to decide whether to save money or pay off debt)? Everybody Iâ??ve asked seems to have their own opinion. Most people say I should take every dollar and send it towards the credit card debt. I would really appreciate hearing from anyone on this board who has ever faced a similar experience, or just from anybody who has some advice. Thanks again to everyone who contributes to this board. Iâ??m learning so much in this place.
I am not an expert in this AT ALL. But maxing out a card that you just got does not seem like a good idea to me. You are going to scare Citi and your rate is going to go through the roof. I would call the 12% card and see what they are offering for BT's and try to get a rate reduction at the same time. After that I would make a decision on where to go next. By the way...Why did you close the other account? Did you have a long history with them? Why not try for a major rate reduction?
Actually, the 12% card is maxed out at 5K, just like the 19% card was. The offer with Citi was 0% for 12 months and they can't jack my rate unless I exceed my limit or fail to pay on time...neither of which I'm worried about happening. It just didn't make any sense to keep 5K at 19% when I had the opportunity to move it to 0%. To be honest, when I called to do the BT, I only wanted to transfer 4K, but the guy at Citi was practically begging me to do 5K. I don't think they're scared. They want my business. I've done nothing but make credit card payments on time for the past 6 years and Citi knows that!
You need an emergency fund if you ever hope to break the debt cycle. Keep anywhere from 3 to 6 months of living expenses in cash. That way, when you have any sort of unexpected expense, you can pay cash for it and not have to haul out the plastic and start the cycle all over again. That's what I did inJan. of 01 when I made the decision to get out of debt. I made minimum payments while I built up my cash reserve. Once I felt comfortable with my e-fund, I attacked my cc debt with a vengenance. Like everyone else, I've had unexpected stuff happen. When it does, I write a check. Hopefully, aometime in late 03 the cc debt will be zero and stay that way. Just make minimums on the Citi card with zero. Keep some savings and pay as much as you can budget on the rest of the cc debt.
Oh, I forgot to tell you. The 12% card actually had its rate reduced from 19% a few months ago. It's with Capital One, but I doubt they'll go any lower (at least not right now anyway). Thanks again for your feedback.
Forgot to answer you. I closed the other card because it was sub-prime and they refused to lower my APR (even after I was a customer for 4 years).
Hi Outofdebt, Welcome to the board. I'd recommend you transfer your 5k 12% debt to a new 0% cc and preserve your savings. That means DON'T TOUCH THE SAVINGS lol Unforeseen life events can occur and screw up everything. That's why one should have an emergency fund to rely on in such cases. Financial experts recommend 3-6 months worth of living expenses. But then you'll need to cut back on your expenses and increase income, if you can. How much of a tax refund did you get back last year? The average refund last year was almost $1,500. That means that they've permitted the IRS to keep 1500 too much. One could adjust their withholding exemptions to reduce this withholding which, by default, means it's that much more that would show up in your paycheck every month. In this case; $125 a month, which should then be applied to power down your CC debt. This would invlove NO cash outlay and would not interrupt your existing lifestyle. (and that's not to say that your lifestyle doesn't need interrupted). This is just one of many tricks we use. Do it this way and you will emerge with an even larger credit line than you now have. You can email me if you feel the need.
Thanks, Butch. That's kinda what I'm thinking, too. If I can get approved for a 5K AT&T card at 0% for a year, I think I'll transfer the 12% from Capital One to that card and just leave my savings intact. I could probably pay at least 5K of the 10K balance off in one year. After that, it only goes to prime plus 4.99% I've cut back on expenses as much as possible in order to allocate as many dollars as I can towards paying down my debt. If I told you some of the things I've done to save money, it would truly be pathetic and I'm not sure I want to embarass myself that much, especially since I'm so new to this board! Let's just say that cold cereal for dinner is not that unusual in my house. I am definitely cutting back as much as I can. Heck, a spending spree for me involves buying a frozen pizza (on sale of course) and renting a $1.99 video!! I actually owed taxes last year, but only $160, so I think my exemptions are about right. Anyway, thanks a lot for your advice.
First of all, I'm proud that you want to pay off your credit balances. As for cashing out your savings, I would recommend that you DON'T DO IT! Keep that around for "Just in case". However, limit or eliminate your savings plans. All your available monthly income should go for your living expenses and debt reduction. Most people always ask "What's the worst case scenario?" Answer that question for yourself. What if the worst happens? If you have your savings, you can tap into that if necessary. If it's gone, you can use your monthly cash flow. If that's not enough, you can borrow against your credit cards just like you have done before. You'll only be a couple of months behind your plans, but you'll be on target. If you CHOSE to cash out your savings to pay off your credit card, DON'T CLOSE YOUR CREDIT ACCOUNT! Just keep it open for emergency use and only for emergency use. Just my $.02 worth. David Kinder
I'M NOT AN EXPERT EITHER~~~BUT 0.00%~~~I DON'T THINK TWICE~~~I MAX IT OUT!!! The money you SAVE is worth more than the POINT HIT!!!
I was paying $91 a month just in FINANCE CHARGES on a 5K balance at 19%!!! That's almost $1,200 a year...just in finance charges!!!! Can you spell R-O-B-B-E-R-Y ??
I wouldn't have a savings account (paying 2%) EVER if I was paying 19%...or even 12%... My opinion for what it's worth...
Personally, I've made the choice to pay down the debt instead of saving. My perspective is that savings at 2% and credit debt at 18% means I'm losing money by saving it, so to speak. I have three cards that I am currently paying down, which I do not use for any purchases. These balances only go down, but they are large, so it's taking time to pay them off. I also have one relatively new card that I use to make purchases and then and pay off in full each month. I'm trying to tempt this vendor to improve the sucky terms they gave me when I got the card (applied for "platinum", received "classic with alternative pricing") I use this card to cover my expenses if I've made overzealously large payments to the 3 accounts that I'm strictly paying down (and therefore run short on cash for the month). This is working okay for me, but I really wish I had an e-fund, too. Then I probably wouldn't need the newer card to cover expenses. I've also made every effort to trim all the fat from my budget. Over the last year, I've expended about $7500 to pay down about $6000 principal of credit card debt. And I've done this on about $23200 annual take-home [insert pride in accomplishment here]. Such is the power of anal-retentiveness. I've logged everything I've spent--cash, check, and charge--for the past 3 years. It's an eye-opener, ya betcha. My advice for *your* situation is to stop using your credit cards except to move balances around between cards to get the best rates while you pay them off. Start treating your savings account like it's a secured credit card that you've issued to yourself, which you pay off each month. Don't use your credit cards for emergencies; instead use the savings fund, but be sure to pay yourself back ASAP. It also might be good to see if there's any fat to trim from your budget. Analyze your expenses, and when making purchases, always ask yourself if what you're buying will gratify you as much as being debt-free. -ingenue Disclaimer: My advice is only my 2 cents. YMMV.
My point was NOT to keep a balance on the card, but to keep it open with that 0 balance. If I didn't spell it out clearly I am sorry. What I meant is with other cards MAXED it would be good having a card with a 0 balance, bringing down your usage, and boosting your score.
Your situation differs from that of Outofdebt. If you had the opportunity to transfer your debt to a 0% cc I recommend the same for you. If you don't then power that debt down asap. You're right on.
*Heehee* Tried to get a 0% BT for a year. That was the "Platinum" card I applied for but received "SuckyTerms" card. The product I was assigned, the "Classic with Alternative Pricing" retracts the 0% BT offer. Bastages. Their offer said as much, but I didn't think they'd assign me to this category, since its interest rate is 4 points higher than my current "balance marked for death card" and 7 points higher than my best card. -ingenue
Oh, I gotcha...sorry about that. Yes, that's a very good point. The only reason I cancelled that other card is because they refused to lower my APR from 19% (after 4 years of paying on time). Their best BT offer was for 14%, too. If I use my savings to pay off my Capital One card, I definitely plan to keep that card open with a zero balance, so I can use it as an "out" in case Citi jacks my rate for some reason. Thanks again for your input. I appreciate everyone's perspective on this board!
You were offered some good suggestions. One I didn't see was this=Consider moving your 5000 Savings into an account paying more than 2%.
This is a good question. Personally, my wife and I just paid off about 25,000 in debt. The only money that I owe anyone is from a rehabbed student loan which is about 1900.00. My wife owes nothing. Oh and we do have a mortgage, but we don't worry about that. And we could have chosen to keep that money in savings, but instead we decided to bail ourselves out. Basically, the money that your credit cards are making off of you is far more than what you can make by having it in savings. If we were talking about the 80s where saving actually did something because the interest rates were a lot higher then. But we are not. And once we paid everything off, it was a big load off of our shoulders. My wife was able to quit her job, we are expecting our 1st child in February. When you have less bills, your money actually means more to you. My philosophy is you can't save if you still owe. Sure you can have money in the bank collecting the 2% while your cards are making at least 10%, but in the end you are going backward. Paying off all the bills have worked for us. We hope to never see debt again. We cut up and closed most of our credit cards, and we kept some. We called others to see if they would lower the interest rate. Right now our highest interest rate is 12.9% and the lowest is 7.79%. And these would only be for emergencies. We got rid of most of our store cards, because they have the higest interest. Why shop with a Burdines card for 22% interest, when you can use the 7.79% interest card. My opinion is set yourself free and pay off the debt.
Thanks, yes I thought about doing that. Unfortunately, even CD's aren't paying that much, and if this $5K is meant to be my emergency fund, I don't think I should lock it into a CD or put it in an investment that might involve substantial risk.
