by Hope
There have been lots of questions and confusion in the comments of my latest budget post regarding my credit card. Rather than responding to all the individual queries, I thought I would clear it up here.
Credit Card Details
My line of credit on my only credit card is $5,000. This past fall, I was able to pay down the rolling balance from continually maxed out at $5,000 to $3,700. And I’ve kept the maximum balance at that $3,700 range for the past few months.
How I Use It
I use the credit card as a rolling line of credit. Meaning, I use it but pay it off immediately. And I use it a lot every month. I pay a number of my monthly bills with it as well as use it for gas and groceries.
This is why I don’t have a minimum payment for the credit card in my budget. I pay the minimum in my usage and payment strategy. But have been good at no longer growing the debt this fall.
My Reasoning
I realize that this is not the recommended use for a credit credit. But I do this for two reasons:
- One it gives me added protection from having my bank account cleared out again. (This has happened at least twice in the last 4 years.) I am very careful about using my debit card or anything that has direct access to my cash.
- It also allows me to keep paying on this debt and not growing it any further.
I hope this clears up the questions about my credit card, why I didn’t budget a minimum payment for it and how I use it. If there is anything I missed, please ask in the comments and I will do my best to answer.
I do know that I am not willing to close this last credit card account, even when I do get it to $0. But I will definitely always have the cash to pay it off. I just feel safer using it when traveling and for the added security with larger purchases, car rentals and more.
Editors note: One way you might consider improving your credit score is something called tradelines. When you get a tradeline you’re basically paying a fee to be added to someone else’s credit. Buying tradelines isn’t for everyone. It costs money and unless you want to spend thousands of dollars a month, its only going to be a partial solution. So you’ll want to be sure your bills are paid on time and your credit card utilization is low.
Hope is a creative, solutions-focused business manager helping clients grow their business and work more efficiently by leveraging expertise in project management, digital marketing, & tech solutions. She’s recently become an empty nester as her 5 foster/adoptive kids have spread their wings. She lives with her 5 dogs in a small town in NE Georgia and prefers the mountains to the beaches any day. She struggles with the travel bug and is doing her best to help each of her kids as their finish schooling and become independent (but it’s hard!) She has run her own consulting company for almost twenty years! Hope began sharing her journey with the BAD community in the Spring of 2015 and feels like she has finally in a place to really focus on making wise financial decisions.
I understand that you pay off the rolling balance each month, but for clarity are you paying interested on the $3700 each month that was already accrued? I suggest not using the card for awhile and paying it off in full to get it to $0 and then use it as you have been paying off in full each month. Otherwise, this is nothing but a high interest loan.
How much interest are you paying every month on this card?
The interest runs about $56 each month.
At the typical interest rate of about 25% you are paying $925 per year in interest. Or $77 per month. I use my credit card the same way but pay it down to $0 each month to avoid paying any interest. Pay it down to 0. Quit giving the credit card company your hard earned cash! Wouldn’t it be great to have an extra $77 per month in your budget? That would have a much larger impact than saving $5 bills and adding up change in a savings account.
I also think you should stop using it until you pay it off. In addition to paying interest on the $3,700 outstanding balance, when you use it it drives your average daily balance up, which is what is typically use to calculate interest. So even paying off new charges every month, you still end up paying some interest on them.
At the very least pay some extra every month to slowly chip away at that $3,700 dollars.
I am personally a fan of you trying to pay it down in increments and making a game out of that balance. See if in a month you can get that balance down to $3500. Try using a combination of cutting the amount you are spending on the card for bills like groceries or maybe even throwing an extra dollar or two to round up the total when paying down a purchase(example:I spent $270 on the card for my utilities , I pay $300 to cover the cost of my utilities bring that $3700 to $3670. I budget $150 for groceries and instead spend $130 but still pay $150 to the card. My card total goes down to $3650. My gas budget is $ 60 for two weeks . I try to make do with $50 but send $60 anyway. I do not spend my $10 on personal goods but send it to the card anyway the card hits $3630. The kids and I order pizza and get a redbox. We use $22 of our $150 entertainment budget. I decide to send $35 to the card giving us $115 left but paying down the card more by another $13 bringing my total to $3617. My quarterly life insurance is due instead of $23 I send $25…../.$3615. I have an extra $20 that a client tips me My balance goes to $3595. I save $17 by bringing my balance down below $3600 when they calculate my interest. Lather, rinse repeat. If you are paying as you go it should be somewhat easy to add a few bucks here or there to pay it down further. This card is your second lifeline (as evidenced by the balance increasing during unemployment)so it is in your interest to hav e it paid down as much as you can afford. That way not only do you pay less in interest but the card balance is there should you need it.
Playing games like this with myself was really key in helping me pay off debt. It was really satisfying to make a good decision (like not ordering take out and instead getting creative with my pantry) and immediately reward myself by paying $10 or $20 to a debt.
I love this idea – I really think it would work for you Hope!
I really like this idea…kind of making a game of it.
That works well for me in other areas of my life (like my $5 bill savings jar.)
I totally understand the preference for using a credit card rather than a debit card. My checking account was once drained as a result of a stolen wallet and not being able to use my debit card at the gas pump was a sobering moment. As a result of that incidence, I personally use credit for 100% of transactions that will accept it.
The key really is to pay the balance down to zero so that you stop incurring interest on your monthly routine spending. Obviously easier said than done and I think your current prioritization of debts still makes sense with regard to paying off the collections accounts first.
My biggest suggestion for you is to pay the minimums on all of your accounts and then decide on one debt to send your extra snowball. It’s hard to make progress forward when you split the snowball across a bunch of places and you don’t ever hit those zero balances and reduce your overall monthly obligations.
Hi Hope, I understand your reasoning behind your using the credit card and paying off the monthly expenses but you really need to get the whole balance to zero. You are paying a lot of interest each month. Your interest is calculated on the average daily balance – not just the $3700 you owe from prior months so you are paying interest on your current purchases.
I think this should be your priority. If you want to continue to use it, fine but know that you are paying interest on your current month’s purchases. You should pay off your current month purchases and also pay off some from prior months.
This should be more important that paying off the car. If you want to pay off Collections #2, I’m okay with that as you need a boost and having one debt gone will be a huge morale booster.
Please consider getting that card paid off.
If you could do only one financial thing this year I would get that paid off. If you carry say a $3700 balance at 20% interest, that’s over $60 per month in interest! Once its paid off you still can use it as a rolling line of credit, just pay it off each month. Thats what I do and many people do, we use credit cards all the time, just pay them off in the 25 day grace period. Think of a nice dinner out the whole family could have each month with that $60!
Hope, frankly, after all these years of working on your budget, I am just gobsmacked that you won’t deal with this credit card debt. There is absolutely no advantage oinusing this as a “rolling line of credit” when you are accruing interest every month. Get that thing paid off and get your head out of the sand!
With all the rate hikes are present purchases also 17% or is the variable rate higher? I ask because essentially if you are just paying as you go then you likely are not paying for all your present purchases since the card companies are going to put some of your payments toward past purchases. You should examine your statement and see how much they are putting towards your initial balance if your card has a variable rate because you could also be accruing quicker if that second rate is higher than the 17%.
One it gives me added protection from having my bank account cleared out again. (This has happened at least twice in the last 4 years.)
Wait, WHAT? I don’t remember you mentioning that! What happened? How much money did you lose? Good Lord.
Everyone else: I have given up on Hope dealing with the credit card issue the way we want her to. I believe she wants to pay it off and will pay it off, but she is absolutely not going to do in the way that makes the most mathematical sense (throwing all money but minimum payments to other debts at it until it’s gone) and she won’t listen on the interest question. It’s been explained a gazillion times that it doesn’t make sense to keep running this balance with that interest rate if there’s any other option, but she would rather prioritize other things. With luck she can get rid of the collections debts soon and will make enough money this year to both keep making extra payments on her car loan and pay off the credit card and we can all stop thinking about it!
We all have learned that Hope will just do what she wants but that doesnt remove the frustration. What is the point of blogging? You have an abundance of debt-free readers giving incredible advice – which Hope continues to ignore, does what she wants and continues to be in debt how many years later. It’s just mind boggling. We never get the full picture either.. oh, I pay off my card in full every month..except for the thousands of dollars that i dont
If there is one thing you will see is that Hope lists what she wants, partial debts, weekly and not monthly spending recaps that dont match with income, etc. She doesnt listen to any of the advice that people give her. If she responds at all it is to defend her position usually.
It’s probably happening because creditors are getting judgements against her and are being authorized to access her bank account. Or it’s the IRS. They were cleaning her out because that was the only way they were going to see any money out of her.
Actually, I have no outstanding judgments or anything like that.
I did fear the tax debt could go that way which is why, in addition to it being another tie to my exhusband, that I want it GONE. And thus is my #1 target right now.
Agree 100% with Jessica. We need some new bloggers who actually want constructive advice and WANT go get out of debt. Not those full of excuses who refuse to listen, as she has shown over the years. Hope’s stories and excuses are ever changing. I’d also like to know if contributors are compensated for their posts here. Hope barely posted updates until the site was sold, then it was nonstop, and half the posts are useless and unrelated to debt.
I was a very short term contributor before the site was sold…and contributors did not get paid at all. In fact that was why I stopped, i realized I was putting time and effort into making some one else money…seemed silly.
I feel like the “payment” is simply getting out of debt – no better payment than that. There are plenty of readers here with fabulous advice and ideas (those usually go ignored). Blogging does take time but most people do it for free and dont already have an active audience in place for them
at the same point….I found it frustrating to be putting in hours of work each week that really gained me nothing tangible. I already knew what I needed to be doing, and I had hoped that the blogging would provide accountabiliy and motivation. However, it really was just an exercise in frustration, finances are not one size fits all, and sometimes this community forgets that and is overly harsh when people do not make the most financial sense.. Sometimes you just have to choose what makes you FEEL better/safer/successful etc in order to be able to keep going. I think Hope often runs up against this, and I personally believe that until she can get a grip on the emotional side of her finances, that she will continue to struggle.
Most people don’t blog for free, they have ads and/or affiliate links on their blogs. I’ve got no problem with the bloggers getting paid for their time if they are producing quality content.
You still really don’t get it, do you? You prefer to pay extra to your car loan instead of getting this down to zero. Not to $3700, but to ZERO.
Well, Hope doesn’t HAVE to do anything we advise, but I understand the frustration others feel.
I made the suggestion long ago to forget the collections until your credit card debt it gone. But you allude to this as tax debt so if you have the feds on your case, you may not have the option to delay payment. If so that information would have been enlightening.
As for the current situation and debt, you have $50 for kids, $150 for clothing/entertainment, $100 for student loans (which I understand are not in official repayment), and an extra $80 you are putting on your car. If you took ALL of that and applied it to this collections in addition to the $246, you would have that paid off in, what, two months? And then take all that and apply it to the credit card that would be gone in what 6-7 months? You’ll have to start paying your loans in the spring but at least you’d get some traction. And We all know, you’ll do anything for your kids, but you have NO MONEY for extras. Entertainment is a deck of cards and the library. What clothes you MUST have, get from a thrift store. It will only be temporary.
My concern is that you have student loans coming up. And doesn’t the Medicaid get a relook at some point soon? How will you pay for insurance? Never mind any savings for retirement. We all just get frustrated because we know it doesn’t have to be like this, what you do to yourself.
Best of luck.
I think that some of the big guns, the one who are really serious about their debt, are on Instagram as part of the Debt-Free Community there. DebtKickinMom and her hubby just paid off $77,000 in debt in 3 years on one income (4 kids). It could be that BAD just does not attract those kinds of debt bloggers/instagrammers. If you are serious about debt, why go through a 3rd party forum such as Blogging Away Debt? Go solo on Instagram and build a huge following as so many of these get-tough debt slayers are doing.
Ashley and Hope have been spinning their wheels for a long time. I know that life happens. Hope had some rough patches with unemployment. Ashley went AWOL for a while while they went on a spending spree (we never did get the lowdown on this) and during which time her marriage fell apart. Yes, life happens, but this is a blogging away debt forum and we need to see some traction! Look at Instagram for some really successful, ordinary people who are serious about debt reduction!
I hadn’t heard of the debt free community on Instagram, thanks for sharing!