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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