3 easy steps to simplify your financial life
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Dear Opening Credits,
I have several credit cards with mediocre balances -- $1,500 to $2,000. I know that seems irresponsible, but there is a legitimate reason for it (too long to go into here). I have been paying them down for several years since my divorce. My payments are 98 to 100 percent on time and always at least three times the minimum payments. (The only time my payments are late is when I am doing travel assignments for work and working 12-hour night shifts. Between travel delays or being just plain exhausted from a long work schedule and lack of sleep, I forget how many days have gone by. It's not like I don't have the money to pay them -- I need a secretary!) Sometimes I even make more than one payment per month. My problem is I continually have problems with the available credit amount being reduced to just a few dollars above my balance. So, even though I have my balance paid down to 30 to 40 percent of the current amount, when the available credit gets lowered, it looks like I'm using 100 percent of it. You know how devastating that is to a credit score?
How can I get those decisions reversed, or what can I do to keep it from happening? I rarely -- once or twice per year -- use these cards and then only for small (less than $100) purchases to keep the card active or to order something that has to be shipped. What is the best, most effective way to handle these reductions so my credit score isn't continually being dinged? And, when is it good to just cancel a card if they continue to do this? Thanks so much for your help. God bless. -- Karen
If you promise not to tell anyone, I'll share a secret: I, too, used to get bogged down with life's craziness, having to scramble to make payments before my accounts went delinquent. Sometimes I failed and had to eat expensive penalty fees. Papers were flying to and fro; it was all such a mess. Like you, I dreamed of an assistant -- a lovely person who would sweep in, organize my affairs, and keep it nice and tidy while handing me a coffee just the way I like it, milk and sugar.
Alas, such divine help costs money -- funds that are actually best put to use for debt deletion. By finally getting sick of living in chaos, I got it all under control without outside help, and so can you. Here's what I want you to do:
Step No. 1: Make three times the charm. That you can afford to pay much more than the creditor's minimum requested payment is phenomenal. Thrice that would be even better. Now set that number in stone. Make sure you can really make that large of a steady payment each month by reviewing your budget carefully. Once you are certain you can do it, make that sum your personal minimum required payment. Throw all extra funds toward the balance, but never go below that figure.
Step No. 2: Streamline your credit. Cut the confusion by consolidating. Rather than dealing with multiple accounts, see if you can merge them into one. Find out which credit card has the highest available credit limit and lowest interest rate, then call and ask if you can transfer the other balances to it at no extra charge. If you are able to do so, great, but keep the old accounts open. (Yes, it is better for your score.) Also request that your credit limit be at least 40 percent higher than your new balance. It's worth a try. It's not unusual right now for creditors to lower credit lines, but it doesn't mean they won't listen to their good customers and readjust it. In fact a February 2010 CreditCards.com scientific survey found three in 10 cardholders reported their credit card limits had actually been increased.
No luck on the balance transfer? Don't worry. Even if you must pay the accounts individually, with such a substantial combined monthly payment, you'll be in the black in about 15 months (assuming a 15 percent average APR).
Step No. 3: Set up automatic bill-pay. Whether you have one or many accounts to deal with, use technology to your advantage. Set up automatic bill-pay with your bank. It's free, and you can have that fixed amount deducted from your checking account every month on the same date and sent to your creditors before the payment is due. You won't ever have to worry about getting your bills paid on time -- though you will have to make sure you have enough in your checking account.
If you follow the steps I outlined and suspend charging, you'll be debt-free in just over a year. With your perfect payment history and zero balance, you should see a big spike in your credit score. After that, I suggest you pick up a card again and use it a few times a month. Pay on time and in full to maintain those high numbers.See, Karen? You don't need a secretary to get your financial affairs in order!
See related: How to dispute credit report errors, 12 tips for automatic bill paying 10 things you must know about credit reports and scores, 8 things you must know about credit card debt, Calculator: The cost of paying the minimum, Calculator: How long until my balance is paid off?
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