Mini Money Management

Posted in Life at 11 am

Getting Smart Slowly: I’ve been following Get Rich Slowly by a guy who lives in the local Portland area, so I can relate to some of the places he goes and people he names. I’ve been enjoying reading his articles, and it’s made me more conscientious about the way I deal with money, plus I’ve been watching for ways to keep the money we have.

As part of that effort, we paid off one of our credit cards last year (Card A) and have kept it at or near a zero balance for a while now. So the Card A people sent us, on a monthly basis, these blank checks to use “for whatever you want” with minimal interest rates. Wow, how nice of them.

The Offers: The checks come in two flavors: 1) 0% interest for 12 months (after which it reverts to an unacceptable percentage rate over 20%) or 2) 3.99% for the duration of the balance. One of the fine print items was a 3% transaction fee that capped off at $200 I had to keep in mind.

I mostly ignored them for about a year, but they were certainly tempting. We had a nice credit limit and the idea of jetting us off on some spur of the moment getaway certainly crossed my mind… but I knew it was just putting off (and increasing!) the cost. I’ve looked at the offers each month. I just needed to find the right time to use them: a time when they would save us money rather than cost us.

The Summer Situation: This year had me flying solo to Montana for a death in the family ($700) and over the Fourth of July Amy and I went on a follow-up road trip to the same town with a side trip for a day in Salt Lake City. (Amy went to a small private liberal arts college there.) The vacation travel costs themselves were fine (lodging $300, gas $250) but we also made some major car repairs in preparation (exhaust system, tires $2,180) so the total came to about $3,400, which we had put on Card B.

In terms of using credit wisely, I think we did okay in this instance. We had very little warning about my flight so there was no time to save for it. We needed to get the car repairs done, but we had been holding off. The family reunion trip forced the issue since we had to get there on the Fourth of July with the rest of the family. We tapped into our embryonic emergency fund to pay for some of the car repairs and cover some of the travel costs, but the $3400 remained on Card B. We traded money for time.

Cunning Calculations: Now with things settled down a bit on the home front, I have had time to re-assess our accounts and look at how we could take advantage of those checks from Card A. I looked at a few of our debts: credit union car loan, credit union personal loan that we used for some debt consolidation last year, and Card B.

The first thing I did was use a generic loan calculator to figure out that with our normal monthly payment, the debt on Card B would have cost about $2,000 in interest and taken over 4.4 years to pay off.

Next I calculated the same monthly payment against the 3.99% rate plus the 3% transaction fee. The transferred debt would cost about $1,000 and take 3.3 years to pay off.

(Paying off the personal loan with the 3.99% checks + 3% transaction fee would have saved us $20. Paying off the consolidation loan would have saved a whopping $2. Neither of these seemed worth the effort.)

Amy and I are both distrustful of large banks and corporations, so I tried to be as cautious as possible. In the end we decided to go for it. All told, we’ll save $1,000 by using these checks.

Warning: Avalanche Zone: Obviously, if we could pay more on a monthly basis, we could knock down both the cost and the length for repayment. We’ve been using a combination of techniques to work down our debts and by next March both the car and consolidation loans will be retired at which point we’ll be able to pile on a bunch of money to wipe out the debt. I think we’ll be done with it by next summer. The Debt Snowball plus automatic withdrawals from paychecks have been a big help in making sure we get these all taken care of. (See the Debt Snowball article at GRS or read the wikipedia article. Amy actually thought up and started practicing the debt snowball style before she or I ever read about it. She’s the smart one in this house.)

…With a Cherry on Top: For those of paying close attention, you may be asking: But what about those 0% checks? Wouldn’t they be an even better deal? You’re right but that’s also a gamble. If for any reason we don’t get that debt paid off in 12 months, the interest rate sky rockets. This is flat out gambling that we won’t have any major financial hits in the next year. I’m not a total pessimist however.

We used the 0% checks to pay off $500 of the debt and paid the balance with the 3.99% offer. I’m willing to gamble that we will pay off $500 in the next 12 months, even if something major comes up. It saves us about $100 in interest, which is a nice bonus.

Other families have much larger amounts of debt to deal with. These 4 figure debts are peanuts compared to what others are facing. But Amy and I are getting our money house in order. These exercises with smaller amounts make me more confident about the larger amounts that we might see in the future. (House? new car?) If I’m not getting rich slowly, I hope I’m at least getting smarter.

Comments are closed.

RSS feed for comments on this post · TrackBack URL