Sunday, April 20, 2008

Avoiding "the trap"

Isn't consolidation great? Just give us your business and we'll take care of those awful credit card payments. Oh, and you don't even have to pay us as much as you were paying them. Fabulous, isn't it?

Except that most people suddenly find themselves with a little extra cash during the month and a stack of empty credit cards. They've been "paid off" right?

The result? A pile of new credit card debt and a situation worse than what they started with.

This is how we're avoiding that trap:

  • I used the money that was put into my account to pay off my Capital One card. This gave me $5500 of available credit and a zero balance.
  • I paid off my BOA and Fleet cards.
  • I transferred all of my WaMu card to my Capital One card. (Note: even with transfer fees and such this and the next step actually save us over $1500 in the long run.
  • I transferred most of my Chase card to my Capital One card.
  • I checked to see that the payment had been received by BOA, Fleet, and WaMu and then called to cancel those cards.
  • We paid off both of hubby's cards in full.
  • I am paying back the amount of the loan that we did not use as soon as all the checks clear.
  • In seventeen months I am going to borrow from the loan (it's like a revolving credit) to pay off the Capital One card in full.
My husband will have exactly one card and I will have two cards: the Capital One with the $5000 at 0% interest and my Chase card. The goal is to use my credit card only for real emergencies (it will be in a block of ice in the fridge) and to use his for small purchases and then pay it off during the grace period. He needs to rebuild his credit due to a few "forgotten" payments that resulted in a flag or 30 days+ late on his credit report.

  • Credit card purchases over $20 in one month must be discussed and approved by both in writing.
  • Receipts are stapled to the written slip and filed.
  • The card is paid off as soon as the amount shows on the account. (Since it's a BOA card it's so easy to do.)
  • Both of us will have account transparency (the other spouse has access 24/7 to the account online to see that there are no sneaky charges)
In short we are:

  • Avoiding using the "overage" to pay for anything, thus doubling our debt.
  • Not giving ourselves the temptation of using our "paid off" credit cards by closing the accounts
  • Reducing our monthly payment by almost half... and continuing to use the great majority of the difference towards the loan anyway
  • Using the small difference that we are saving with the reduced payments to avoid "having" to charge anything else since our margin of error is so tight

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