Removing Temptation, Eliminating Dependency

Eliminating my credit card debt has always been my top priority.  When I created my list of 100 goals, it was my number one goal.  After years of struggling to get out of debt, I managed to pay off the last of my credit cards.  It was the first time in my adult life that I didn’t owe money to a credit card company.

I decided to keep one credit card account open while I began working towards funding an Emergency Fund.  Doing this allowed access to a line of credit while my savings began to grow.  In addition to the line of credit, keeping the account open provided the benefit of 1% cash back on purchases.  I could use the card to pay for Stuff I would buy anyways and earn a little bit of money in the process.

For a while, things were working out fine.  I was able to pay off the balance when the statement arrived at the end of the month.  Over time I began to let the balance slide and I didn’t pay off the entire balance.  This pattern began to compound and before long I was carrying a balance of a few hundred dollars.  I was headed back towards the same life of credit card debt that I had just worked so hard to get out of.

In my mind, I had thought that I could be able to control my spending and use a credit card responsibly.  I thought I could use the card to earn cash back and play the game to my advantage.  I was wrong.  Dollar by dollar I was digging myself deeper and deeper.  The only positive aspect of the entire situation is that I was able to recognize my predicament before it reached a point where it was out of control.  My balance was small enough that with a little discipline, I could be out of debt in a couple weeks.

So that is what I am doing.  I am once again working to get myself out of credit card debt.

This time, instead of thinking I can use a credit card responsibly, I have removed it from my wallet and will not use it on a daily basis any longer.  The only time I plan on using it is to purchase plane tickets, book hotel reservations and when I travel for the security and fraud benefits it provides.  Outside of these specific uses, the card will stay locked away in my closet.  By doing this I am removing temptation and eliminating dependency.

Instead of focusing on paying for my past, I can use that money to save for the future.  I like that idea much better.

Using a Credit Card Wisely

At the end of February I accomplished my number one goal of eliminating my credit card debt.  I was faced with the decision of whether or not to close the account and I decided to keep it open in case of an emergency.  It has been about 2 weeks since I have paid the card off and now I am faced with yet another question: Should I continue to use the card if I am able to pay the balance at the end of each month?

My first instinct is to say “no”.  I worked hard to eliminate my consumer debt from my life, why on Earth would I want to start digging that hole again?  After considering the answer to this question it brought about some other points which should be considered as well.

Convenience- Many people feel uncomfortable carrying around cash.  I’m no different.  I have a tendency to misplace my wallet often and when I have any amount of cash tucked away inside it causes a certain level of panic.  I am not able to get that money back if my wallet is actually lost.  It would be gone with the wind.  Credit and debit cards offer protection against theft or loss which provides the carrier with a sense of security and assurance.  You are able to call your credit card company or bank and freeze the account so that no unauthorized transaction are posted to your account.

Rewards- My credit card earns cash back on each purchase I make.  The rewards aren’t much, but over time can add up.  It may take spending $10,000 to get a $100 check, but if I am going to spend the money anyways, shouldn’t I be getting something out of it?  People will argue that getting 1% cash back on purchases doesn’t make sense when statistics prove that purchases made on credit cards are generally 30% higher than if the person had paid with cash instead.  They are right, it wouldn’t make any sense, but if the card is used for fixed bills or other bills that don’t involve shopping, such as the mechanic bill for repairing your car, in my opinion that argument is no longer valid.

Account Activity- Credit card companies have been on a rampage lately, closing inactive accounts and raising interest rates on the accounts that aren’t generating money in hopes that the customer will close their account.  Why would card companies do such a thing?  Its pretty smart actually.  You aren’t earning them any money and are costing them money from having to maintain your account.  You are no longer an asset but a liability, and that means you get the axe.  If my account does not get used it will end up being closed.  This is my only credit card and having access to a line of credit, for the time being, is important in case I find myself in a situation which I actually need the money.

It is true that I worked hard to get myself out of debt and it would be foolish to put myself into the same situation I just fought so hard to beat.  I do feel that the responsibility for my situation lies directly at my own feet, not the credit card company.  If I was responsible for the bad situation, then that means I am also responsible for the good situation which I could provide for myself by using my credit card responsibly.  If I am to fall back into the same pattern as before then it will have been no one’s fault but my own.

I have come to the conclusion that using the card in some instances makes more sense than using cash.  I have decided that before I make any purchase or payment that I have money in the bank to cover what I am spending.  I do not think that credit card companies are evil, they may be sneaky and underhanded, but that only means that we as consumers need to be smarter to win at their game.  Dave Ramsey says that “if you play with snakes you’ll get bitten”.  He is right most of the time, but what about the snake charmers in India?

Pay Attention

I am guilty of not looking as closely at my credit card billing statement as I should be.  I never really thought much of it as I had a pretty good mental calculation of how much I spent during that billing period and approximately how much my balance should be.  I glance over the recent transactions to make sure that my card hasn’t been used at places I’ve never heard of, then I file it appropriately.  A few months down the road it gets permanently filed in the paper shredder. 

The one area of my statement which I never bothered to pay attention is the APR.  In my mind I always thought that this number would remain unchanged so long as I paid my bill on time every month.  My girlfriend felt the same way about her account.  She has had her account for years and her APR had only ever went down, but while checking her account online she noticed that her credit card company had nearly doubled her Annual Percentage Rate.

Confused and upset, she went through her history to be sure that she made her payments on time and that nothing had been late.  As she suspected, her payments had all posted to her account with plenty of time to spare.  There were no signs indicating why they would double the APR on her account.

The next morning she called her credit card company and asked them to explain why they raised her rate.  After talking with one customer service employee she was directed to another customer service representative.  She explained her situation and pointed out that she had always been on time with payments.  After discussing the matter for quite some time she was told that she had a couple of options available to her. 

First, she could have her rate returned to what it had been, but she would have to close the account.  Her next option would be to take an interest rate which was a couple of percentage points higher than her old rate, but less than the rate her card had been raised to.  The third option she could take was a rate which was lower than her original rate by a few percentage points, but would again return to the higher rate after 9 billing periods.

She looked to me for advice.  I suggested that she take the third option.  My reasoning behind it is that she could use the lower rate to pay the balance on her card down faster and when the 9 billing cycles are up, call the card company to renegotiate a lower rate at that point.  If they don’t offer a reasonable rate, close the account.

What was the reason she was given for the rate increase?  IT’S THE ECONOMY STUPID!

When you check over your account statements, pay close attention to your Annual Percentage Rate, and if you see any changes have been made that aren’t any fault of your own, call your credit card company and request a lower rate.  If they are unwilling to work with you it may be time for you to consider closing the account.

Lower Your Interest Rate

For some people, being in debt has become a way of life.  Nearly 40% of Americans who have a credit card do not pay the balance in full every month.  As a result, they will end up paying interest on their balance.  Some people are “lucky” to have a reasonable rate, but countless others are not so fortunate.  The average interest rate is 14.71.  To some this may seem like a great rate compared to what they have now.  What can you do to lower your rate and begin to pay down that debt faster?

Lowering your interest rate can be surprisingly easy.  First, be sure that your account is current and that you have a payment history that shows that you have made all of your payments on time.  Even if you have missed a payment in the past it is still possible to get a rate reduction.  The further in the past that happened, the better.

Gather your credit card statements and call the customer service number.  Be sure you know your account number, balance and current APR (Annual Percentage Rate).  Having numbers to reference will make you a better negotiator.  When calling simply ask for a reduction in your interest rate.  Be sure to point out your payment history if you’ve made all of your payments on time.  The most important thing is to be courteous.  They take calls from people all day long asking the same questions and by the time you call there is a fair chance that they have had some bad customers.  Dealing with someone who is respectful and polite will be a nice change of pace for the customer service employee.

If they won’t lower your rate be sure to ask them the reason why.  You want to know what you can do in the future to improve your chances next time you call.  If you are still not satisfied and wish to pursue the matter further, ask to speak with the supervisor.  This may or may not get you anywhere, but it is worth a try.  The same thing applies when talking to the supervisor, be polite.  If you get upset or rude, they are not going to deal with you. 

If you still don’t succeed, thank them for their time and hang up.  You can (and should) call back in a couple of weeks.  Mention that you have another card that is allowing zero percent balance transfers and again remind them that you really enjoy being a customer.  It doesn’t hurt to bluff once in a while.  Eventually it will pay off and you will get that lower rate.  If at first you don’t succeed, try, try again.

Finally, don’t stop there.  Keep calling every couple of months to see if they can lower your rate again.  If you started out with a really high rate it is possible to keep slashing the number.  Be absolutely sure to make every payment on time otherwise all of your hard work will have been for nothing as they will increase your interest rate as soon as you don’t get your payment in on time.

Good luck!