Game plan... advice sought

mp84

Hello everyone. I'm new to the board and seeking advice as I'm sure many have done. To be honest, I would normally go to family for financial advice but I'm embarrassed about my situation because my family all has good spending habits and I dug myself a hole a few years ago. About 15 months ago I became really serious about getting out of credit card debt and I have reduced 13k down to roughly 7k. I have excellent credit.

Right now I have three cards:
A - zero balance - 17.99% - open offer for 0% balance transfer for 12 months (9,900 limit)
B - $5,100 balance - 15.24% -
C - $2,100 balance - 9.24%

I also have $3,500 in an emergency fund. I am self employed so my risk of income being cut off is virtually zero. My income does fluctuate though so any given month I could end up short and need to draw from it. $3,500 is two month's living expenses.

Here's where I need advice. I am thinking about transferring the $5100 on card B to A through the zero interest for 12 months offer. I would incur the 3% fee. I'm also thinking about knocking out card C entirely via my emergency funds, so that I'm making payments on only 0% debt. Then I'm free to pay all extra money toward the (new) card A debt and build up my emergency funds more again. Right now I budget to pay $200 toward credit cards each month and often throw in an extra 200-400 on top of that. (Basically all my extra income)

My only concern is that card A will return to 17.99% after 12 months. I know I will have reduced the balance dramatically by then, but I'd still be paying higher interest there than either card right now. I may be able to exercise a low or zero interest transfer on card B or C by that time, though. My goal would be to get total credit card debt under $2,500 before the 12 months is up.

I realize that poor decision making got me into debt. I don't want to continue making rash decisions in my effort to get out. So is this a wise plan or not?

Thank you for taking the time to read and for any insight you have. I sincerely appreciate it.

MyLastFiver

You can have the best of both worlds, by transferring both balances to the interest free card. In 12 months' time, use your cash fund to pay off the remainer. Thus, 1. no debit interest incurred at all, and 2. you will continue to receive credit interest on your savings (put it in an easy-access cash ISA).

If you can pay off £4500ish of debt in 12 months, then once you're not making credit card payments and more, it won't take you long to replace your cash fund.

DVardysShadow

mp84 wrote: »

Here's where I need advice. I am thinking about transferring the $5100 on card B to A through the zero interest for 12 months offer. I would incur the 3% fee. I'm also thinking about knocking out card C entirely via my emergency funds, so that I'm making payments on only 0% debt. Then I'm free to pay all extra money toward the (new) card A debt and build up my emergency funds more again. Right now I budget to pay $200 toward credit cards each month and often throw in an extra 200-400 on top of that. (Basically all my extra income)

Roughly you are going along the right sort of lines. But rather than wipe out card C with your savings, you should put the money to paying down card B.The difference in interest rates is 6%, so that is £120 in interest which you can save immediately.

If you are confident of keeping your cards open, then you could think about using card C to cover for your savings as long as you can make all your payments by card - but you may need some savings to cover cash needs.

As for the interest on card A going to 17.99%, you need to work out how much you can transfer between cards by stealth. To transfer by stealth, you put all of your regular spends onto one card and pay off the minimum on that card for the month - then pay off the balance you spent on that card but on another card. For example, you spend £800 on card 1 and pay the £25 minimum on that card - but pay off £800 on a card you did not spend on.

If you have got the idea of a stealth transfer, you can work out how far in advance you need to start bringing down the interest on the high interest card. Note of warning! - Don't spend for the sake of it to make a stealth transfer!

theoretica

What interest are you getting on your emergency savings? If it is more than 3% after tax, or tax free you should transfer both cards to the 0% rather than paying one off.

If you are not getting more in interest than the balance transfer fee:
If you have a couple of lean months how much of your spending is money which you could put on a credit card? At this stage, with some debt, you only need enough in a savings account for the non-creditcard spending, the rest you are probably better off storing in a reduced cc borrowing rather than in a savings account.

savingholmes

I personally pretty much would always transfer debt to the lowest apr even if that means taking out new cards... but you have to be able to trust yourself not to start spending

If you did use your savings but were successfully approved for a 0% card that allowed 0% spending for the year - you could keep access to emergency funds but avoid a 3% transfer fee and save on interest on the debt by using your savings to pay it off (unless you are getting better than 3% interest)

immoral_angeluk

As this is a UK website I'm not sure you're going to get very accurate advice with you being in the states.....

mp84

immoral_angeluk wrote: »

As this is a UK website I'm not sure you're going to get very accurate advice with you being in the states.....

Yes, I did realize that... but I decided to post here because it seems to be the most supportive community I could find. I didn't want to post somewhere for advice and regret it. I figure numbers are numbers... I DO wish I had the better interest earning options that you have over there!

Thank you everyone for the input. I'm going to sleep on it for a few days, weigh out each suggestion, and make my move.

Kudos to all of you in this forum... it seems everyone has their heads screwed on straight. And the diaries that I'm reading are absolutely inspirational. :beer: