Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com.
Dear To Her Credit,
Like many people, we have several credit cards that we are
not using anymore. We are trying to pay more than the minimum to get rid of
them.
We have one card from Beneficial that we had used for
remodeling that's considered a "revolving credit" card. Beneficial
sold out to Bank of America and the interest rate is now 21.9 percent. Our
balance is about $13,000. To top it off, the card is unusable from their
sell-out , and they lowered our credit limit to lower than what we owe!
Our minimum payment on this account is $300. We don't know
what to do. The balance only goes down $40 each month and at this rate, we'll
die with it. I called to try to work out a lower interest, and they said
absolutely no. Do we have any other options? -- Debbie
Dear Debbie,
You won't die with the debt if you keep paying just the
minimum -- but it may just feel like it. At your current rate, it will take you
more than seven years to pay it off, and by then you will have paid another
$13,000-plus in interest!
To get rid of that debt, you've got to get the interest rate
down and your monthly payments up.
Use this tool to calculate how changes in your interest rate
and monthly can help you get rid of that debt -- the credit card payoff calculator.
Using the calculator, you can see that with your current
interest rate and payment, you're in for this scenario:
Interest rate
Balance
Monthly payment
Months to pay off
Interest charges
21.99%
$13,000
300
88
$13,108
What if you could add just $2 per day -- $60 per month -- to
your payment? You'd save $4,500 in total interest and be done 28 months sooner.
Interest rate
Balance
Monthly payment
Months to pay off
Interest charges
21.99%
$13,000
360
60
$8,489
Better yet, find a lower interest rate and pay $2 per day more on your balance, and cut your interest
charges by more than two-thirds!
Interest rate
Balance
Monthly payment
Months to pay off
Interest charges
12.99%
$13,000
360
47
$3,577
Keep using the tool to determine how quickly you'd like to
pay off your remodeling debt. It's amazing and motivating to see how small
changes can make such a big difference.
Next, work on that high interest rate. When calling the bank
doesn't help, write a letter asking for a rate reduction. It's harder now to
get the rate down than it was a year or two ago, but it doesn't hurt to ask.
If they still say no, look for credit elsewhere. Balance
transfer cards are still being advertised, even if they're not as easy to get as they used to be. Read "5 new rules in the credit card balance transfer game" before you look
for the best balance transfer deal.
Be careful of balance transfer fees. They can quickly outweigh
the advantages of the transfer if you're not careful.
If you find too many fees and less-than-tempting interest
rates on balance transfer credit cards, consider a regular low interest credit card
and a do-it-yourself transfer. Instead of directly transferring your balance to
the new card, use your new card to pay monthly expenses. Send all the cash you
would have spent to pay down principal on the higher rate card. (Don't miss the
second step, or you'll be much worse off than when you started!)
Finally, find money you can use to increase your monthly
payment. Two dollars a day, as in our example, shouldn't be that hard to find.
If you go out for lunch, drink water and skip the appetizers. Eat beans once a
week. Get your movies and books from the library. Grocery shop with a list.
Sell something on Craigslist.com. Do some moonlighting.
You'll enjoy your remodeled home a lot more if you're not
still paying on it seven years from now. Good luck paying it off much more
quickly, and take care of your credit!
Sally Herigstad answers questions about credit every week for CreditCards.com. Herigstad is a certified public accountant, author and speaker. She also writes regularly for MSN Money, Interest.com, Bankrate.com and RedPlum.com, and has been a guest on Martha Stewart radio and other programs. You can read more about personal finance and download free budgeting worksheets at her website: www.sallyherigstad.com
To Her Credit answers a question about a debt or credit issue from a CreditCards.com reader each week.
Send your question to Sally.
Published: April 9, 2010
Three most recent To Her Credit stories:
Should one spouse take on full debt load? – A married couple with joint card debt wants to transfer the balance to a lower rate card. Should the better credit score spouse take on the burden alone? ...
Can you use dad's credit card when he's ill? – An adult child is taking care of her dying father and wonders about the legality of using his plastic to pay for bills and medical expenses ...
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