Friday, January 8, 2010

Credit Cards & Such

On Tuesday, I asked what was wrong with my budget. The resounding thing I heard was I don't know (we can't all be money experts, now can we?). Almost everyone who offered advice (via email, in the comments, on gchat, or over the phone) included advice on credit cards. Here's some of my [random] feedback on everyone's advice.

1. Stop Using Credit Cards: Natalie mentioned that I should stop using the credit cards, which is awesome advice. Thanks Nat! This is true, but I wanted to note, that I don't [think I] abuse my CC now. The balances are high due to old debt (College, jobless, working for pennies, etc, etc). So, despite only using CC sparingly in 2009, my balances are still high and I need to stop cold turkey and not use them AT ALL, no excuses, no exceptions.

2. Pay Credit Cards Down: At least 4 people, including Well Heeled said to close my credit cards. They just said close 'em as if it's some easy thing I can just do. Like close a door or close a relationship. Yes, in my opinion it's easier to completely cut someone off with whom you used to be close, than to close a credit card. (Bright Idea: I shall start to think of my credit cards as ex-boyfriends. That means I'm done with them unless there's a life or death emergency.)

I digress. Paying credit cards off is difficult because as my salary increases I WANT to do more fun stuff with my money (and keep paying the minimum balances) vs. use my increase to pay off old debt. BUT I set a goal for what I NEED to do: pay down to 1-20% of total available balance and I'm going to do it!

3. Close Credit Cards - Your credit score looks at your available debt to used debt ratio. If I close a credit card it decreases the amount of available debt I have and thereby lowers my credit score. People have told me "Well I never had a credit card and my credit score is fine." OR "I only have one card and my credit score is fine" OR "I only have two cards and my credit score is fine." I'm happy for those people who didn't make the mistake of opening a gang of credit cards in college and shopping at the mall like clothes were going extinct, but I did and so I have to take different steps to obtain and maintain a high credit score.

Each time I opened a credit card, the available balance was added to my total available balance and now, no matter how many anecdotal and personal stories I hear to the contrary, my credit score WILL drop if close them.

Card #1 has the most history (can't close that) and #3 has the best interest rate (4.90% what what!) and the highest credit limit (can't close that). I could, maybe, possibly, consider closing Card #2 but unless I get a windfall of money or the credit orgs change HOW they calculate credit, iaintgonebeabletodoit.

Nope, what I need is a dose of act right (i.e. self-control) and a bag full of nos. No, I can't go on a trip. No, I can't come to your birthday party, baby shower, wedding, bbq or other function. No, I can't buy Cambodian breast milk at the grocery store or Miss Jessies products online, no I can't go shopping at DSW or Nordstrom or anywhere really. No, no, no, no, no.

*Sigh* This concludes: Get Tea's Money Right Week. Stay tuned for check-ins on how it's going.


antithesis said...

i cant relate b/c i have one CC i used when i moved off campus for that one year and that was for bills which i paid off completely and am now carrying a small balance on but i do understand y u cant close ur CCs. good luck with working out ur finances. i think my sis has 3 credit cards and she paid off one and uses just the one with the rewards component and is working to pay off the third. i dont know if that fits for u but u could try that.

b.goody said...

I know it's hard dealing with credit cards... Have you considered giving yourself a cash allowance each week? After you realize how much you really don't need your cards, it may be easier to make decisions about them.

chichi said...

I made the mistake of closing two of my CCs listening to other people's well intentioned advice and it hurt my credit score, so you did well to do all your research.

Have you considered borrowing against your 401k? I know it's considered risky but consider the interest rates on your credit cards and the interest rate on repaying the 401K loan.

Once you pay the cards off in one fell swoop you have more room to pay off your 401K faster than your repayment plan agreement by using your Short Term Savings plan and the paycheck deductions.

If you are doing this I will strongly advise you devise a plan that details when you expect to have the loan paid off if you do an automatic savings for the Short Term savings.

Also look into using an interest-yielding savings account option, it's a trickle effect that builds up.

South Loop Social Light said...

Are you able to transfer the balance of credit card #2 over to the one with the highest balance? And yes, as you make more money you want to do more things, but unless you plan on buying a piece of real estate in the next 1-2 years, I'd suggest closing out that 2nd credit card and not worrying about how it'll effect your credit score. You seem to be happy where you are in your apt and not in a situation where you'll need to use your credit for anything. Paying off your debt should be your priority. We all have to make sacrifices and I think it's always easier to do now rather than later.

South Loop Social Light said...

I meant to say "highest limit" not highest balance.

Anonymous said...

Can I be Suze Orman for a minute? NO NO NO DO NOT BORROW FROM YOUR 401 K Girlfriend! LOL

I'm: 1. glad to see this is a priority for you. It is also a priority for me and our family.
2. You are dead right on the closing of the credit cards thing.
3. Are you going to get an income tax refund and if so, what's the plan for that money? or if you owe, where will that come from? If you are getting a refund, you might try to create a strategy that will get you to where you want to be, start up your savings or emergency fund, or make money for you somehow.
4. Birthday party, baby shower note: Give your friends homemade gift certificates in beautifully decorated envelopes. "This certificate is good for one Mommy & Daddy Night Out" means so much more to me than a freaking babywipe warmer. (no offense to the people who bought me one.) But gifts from the heart mean more. "Happy Birthday Friend- I owe you a homemade dinner and dessert!" is a sweet way to be financially concious, but still generous.

You can do it. I believe in you!