FREE NEWSLETTER
LIKE MANY AMERICANS, Sally found herself caught in a whirlwind of unexpected expenses and mounting credit card debt. It wasn’t lavish vacations or shopping sprees. Rather, it was veterinary bills for her aging dogs.
I conducted a credit-card debt-reduction workshop for Sally. Here’s a glimpse at her finances:
Sally was stuck in a cycle of paying just the minimum on her credit card, barely making a dent in the principal amount. Together, we crafted a two-part plan.
First, we moved Sally’s card balance to a zero-interest credit card with a 21-month promotional period, albeit with a 3% transfer fee. This move was a game-changer, offering a window of opportunity to chip away at the debt without the burden of accumulating interest.
Second, Sally committed to redirecting $1,000 a month toward the zero-interest credit card. This accelerated repayment plan meant she could bid adieu to her credit card debt in just over a year.
Why didn’t Sally use her emergency savings to wipe out the debt immediately? That was tempting. But by keeping her emergency fund intact and opting for the balance transfer strategy instead, Sally could potentially earn more in annual interest than the transfer fee she’d incur, plus she still had money set aside for emergencies. As part of all this, Sally shifted her emergency fund to a money market account yielding 5%. That allowed her to earn $1,300 a year in interest.
Sally is now focused on paying off the zero-interest credit card debt and not accumulating any new credit card debt.
Hi Lucretia, Thanks for this simple strategy to share with our less financially savvy family and friends, and your short, to the point article.
Thank you Mary. If people were taught financial literacy in schools then people would realize how much money they pay when they use credit cards with rates over 25%. I was working with one woman who had a line of credit with Citibank that she didn’t think she was paying any interest on. It turns out she was paying over 25% APR.
Lucretia:
In the period 2007-2010 I was working for the largest Fraternal Benefits Society in the US, as a Regional Management Associate. Basically I was a producing financial advisor with the additional responsibility of training and developing younger advisors. (Younger in experience, not necessarily age.)
One of the greatest satisfactions of my position was the ability to conduct financial planning seminars and debt management workshops, pro bono, for our member families.
The materials used were truly first class and were provided to the attendees at no cost. My wife would also prepare cakes, pies and other desserts and I provided coffee and drinks. I did 3-4 four of these events a month, for almost 3 years, and I know I made a positive impact in the lives of more than a few hundred families.
It certainly sounds like you and I share a similar desire to help those without financial education. Congratulations
That sounds rewarding
Thank you for all of your comments. Let me give you guys the full picture. Zero interest credit card balance transfer is only good for a subset of people who are in credit card debt. Sally was a good candidate because she was fiscally responsible but wasn’t getting out of credit card debt because she really didn’t understand how she could get out of it. She didn’t understand how much interest she was paying and that just paying the minimum that the credit companies suggested would never get her out of credit card debt. The credit card companies really don’t want you to see the big picture and understand how much you are paying. Using a zero balance credit card calculator like the one on my website https://www.financialfreedomforwomen.org/resources helped her develop a plan. She was committed to not incurring new credit card debt and paying cash in the future.
I am the founder of the non profit- https://www.financialfreedomforwomen.org/. I do not accept any fees, donations, advertising, commissions or sell any financial products. I do these types of workshops for women to help them make financial decisions that are in their best interest.
Unfortunately Sally’s 2 dogs had passed away but she was still stuck paying off the credit card debt. Which is not unusual.
I wonder here if the issue is not the aging dog vet bills but the criteria for use of an emergency fund. One might debate that the bills could be planned/saved for as larger, lumpy expenses or that they are emergencies, of a sort. Would I use a credit card with 17% interest rather than pay cash if I had it? I’m not sure I would.
I think in the future she won’t be using a credit card and will be paying cash if she can. She will also be building up her emergency cash.
Thank you for helping out Sally.
Focusing on expense management can transform our financial lives for the better. Regardless of how much you earn, having the right tools and a framework for spending wisely is essential for securing a comfortable retirement.
Unfortunately we don’t teach financial literacy in school and credit card companies take advantage of them.
Clients of mine lost their business and were struggling to avoid bankruptcy. They also had a couple 140 pound dogs. Those dogs must have cost them a fortune to feed and care for, but people love their pets. I hope that Sally’s pup stays healthy so Sally doesn’t need to get the CC back out.
I know the point here is effectively managing debt, good job.
However, the basic problem is the bills she incurred, but obviously can’t afford. What happens with ongoing future bills for the dogs?
How will she not accumulate more debt?
Has the real problem been dealt with?
I’m on a neighborhood social media platform called NextDoor. If you want to incur the wrath of a large segment of the participants, say something that is perceived as a slight to pets. In their eyes, the pet is a family member and has equal status to a human. Although I firmly agree with you from a pragmatic standpoint, I’m afraid changing the mindset would be near impossible and would only cause severe conflict in her friendship. In this case, some compromise (suboptimal financial solution) would need to be made.
I think its cold hearted to suggest that Sally should have denied her beloved dogs treatment. A credit score of 820 and an emergency fund indicates that she is much more financially responsible that the vast majority of people who become burdened with credit card debt. Sally also showed her commitment to being financially responsible by seeking help from Lucretia.
I interpreted this article as a warning to avoid the burden of spiraling credit card debt.
Sally making the minimum payment each month was seeing her interest charges building on interest charges from prior months. That’s why transferring her balance to a zero-interest card was necessary to get her out from under.
Whether she was charging veterinary bills to her card is besides the point. Any other charges of that magnitude would have put her in the same predicament.
The end of the article announces that Sally is not accumulating any new credit card debt. It doesn’t tell us how she will pay for future vet bills. Cash perhaps?
There is nothing in this article to indicate that Sally had ever faced her predicament before she was faced with the emotional decision of whether to provide her dogs with veterinary care or let them suffer or opt for euthanasia. While you may consider the reason for her predicament irrelevant, I beg to differ.
I infer from your comment that it was not Sally’s fault that she got herself into a pickle because of her emotional decision to provide veterinary care for her dogs.
Sally’s decision was not the reason for her predicament. Her problem was paying for vet care with a credit card, then making minimum payments on a significant balance. Spiraling interest charges overwhelmed her and she sought credit counseling.
She didn’t have to pay for veterinary care this way. She agreed to pay $1000 per month toward her zero-interest credit card. Couldn’t she have made this payment on her Mastercard?
She had $26,000 in an emergency fund. Couldn’t she have paid off her vet bills, then redirected $1000 per month to reconstitute the fund?
I suspect Sally didn’t understand how credit card interest charges can compound. If this was the first time she faced this predicament, I’m sure she learned a valuable lesson.
When we did the analysis it turned out she was better putting the emergency money in a Vanguard money market earning over 5% and paying off the debt at 0% interest. As long as she paid it off before the 21 months that she was entitled to 0% interest this was the better way to go.
Okay, but what happens when the next $3,000 vet bill shows up? Will financial prudence prevail over emotion? Pets are expensive. On average they cost at least $1,000 a year, much more if they become ill.
To me the solution here is like canceling existing student debt. What happens with the new debt incurred by students starting college next September?
Sally didn’t cancel any debt. She responsibly paid off her debt in a little over a year.
Why assume she will incur another large vet bill? Is it your position that no one should own pets if the possibility exists that they might have to pay off a vet bill off over time or that they should deny their pets care?
Do you feel the same way about people who get in credit card debt because of family medical expenses?
You’re right. Lucretia did great work to buy Sally some time, but the next crisis is looming.
i think people who don’t own pets can be too judgmental of those who do. Animals are very important to many people. Sally may again go into debt for her pet, but veterinary care isn’t liquor, hard drugs, or any number of destructive ways to spend.
You are truly doing good work in this world.
Thank you Kim. I know I’ve changed people’s financial lives.