Ahead, Jennifer Thomé shares how she managed a difficult period in her life by doing something risky: Turning to interest-free credit cards. What worked for her will not work for everyone. Always speak to a licensed financial services provider or specialist before making decisions that could affect your financial wellbeing. With that said, here’s one woman’s story of climbing out from underneath crushing debt, unscathed.
In 2017, life handed me a big bag of lemons. In the course of a few weeks, I went from making six figures to being laid off after my company downsized, expecting a baby, and at a loss as to how I’d pay for the mortgage on my new home. My husband and I used our emergency fund as a down payment on the house, so we had to come up with a plan—fast.
I made a list of my options, but none of them were ideal. Selling my house so soon meant I’d have to pay capital gains tax. The same would be true if I rented and then had to sell. Taking money out of my retirement would incur a penalty. And taking out a loan meant that I would automatically add 6-12 percent interest to the lump sum.
As much as I needed the money, I wasn’t keen on paying interest, as that would set me back further financially.
I’d used interest-free credit in the past to buy a laptop and a washer and dryer set I’d coveted, but using it to pay for my life? It seemed risky, but after crunching the numbers, it still made sense. Here’s how I did it:
Stefanie O’Connell, author of the The Broke and Beautiful Life, says that taking advantage of 0 percent interest rate offer periods on new credit cards can be a great way to navigate a short-term financial pinch, but warns that it comes with a big risk.
“If it takes you longer to find a job, if your free interest rate period runs out before you pay off your balance, or if you can’t keep up with the minimums, your interest rate can skyrocket, making the debt unmanageable for many,” she says. “Before you take this route, you should consider your past credit use and current circumstances. IF you’ve always paid in full, have a plan to pay it off during the promotional period and can make the sacrifices needed to make that happen, then taking advantage of those 0 percent introductory rates might be a smart option for you.”
Ok so, if all that applies to you, there are numerous interest-free credit cards with 10-18 month terms, meaning you pay only the minimum payment every month, which is around $200 on $10,000 worth of debt.
But which one is the right one?
That depends on how much current debt you have, how much credit you need, and for how long. Since I didn’t have a cash cushion, I opted for the longest periods available to buy myself time. If, however, you have some credit card debt that you want to transfer, then it may be wise to opt for the lowest transfer rate.
I compared all of the 0 percent interest cards available at NerdWallet.com, and signed up for a 21-month interest-free credit card (Citi Diamond Preferred). This card worked for me because they gave me a large balance, the card does not have an annual fee, and it had a long interest-free period.
How much credit you can get depends on your actual credit, and mine was excellent, so I was also able to open a 18-month card (Citi Simplicity), and a 15-month card (Chase Freedom Unlimited) with large balances. If your credit is good or average, you may have to shop around and see how much of a balance each card can offer you.
Another factor I took into consideration was finding cards that would give me cash back on certain purchases, like gas and bills. Both CreditKarma.com and Nerdwallet.com list the benefits of these cards (though you may have to visit the company website for the exact details).
Some great benefits to look out for are “rewards” (which may be a statement credit, gift card, or cash back) and “cash back.” If you have to travel a lot, then you can sometimes find cards that reward you with miles, meaning you won’t have to spend money on your trips.
For me, getting cash back on my first three months of purchases (known as a sign-up bonus) and cash back on gas and groceries was just what I needed, so those were the benefits I looked for. Once I got my cards I wrote what they were best used for on the back, lest I forget and forsake 5 percent cash back.
You may think you know the date that your final payment is due, but if you’re wrong, it can cost you big. Like, a couple hundred dollars of interest big. When you pay your new card for the first time, message customer service, get the date in writing and take a screen shot, and mark it in your calendar.
I set up an Excel sheet where I keep ALL of my credit card information. Payment amounts, total balance, credit available, and the final day of no interest (minus 2 weeks), marked in big, bold, red numbers.
Seeing everything there in one place was terrifying (I owe HOW much?), but it also made me feel in control and motivated to do something about my financial situation. Once I had some income coming in, I divided my first card (which had no minimum payments) by the remaining number of months and started paying it down. I did the same for the remaining cards once I got them.
Not only did I want to make sure I had a cushion, but I also realized that paying taxes and other government bills with a credit card incurred a 3-8 percent processing fee, so I started setting aside a little cash to take care of those bills as they came in.
The risky part of stacking interest-free credit card debt is that, magically, you have a ton of money available to you, which can lead to impulse spending. I cut out all unnecessary spending and practiced financial fasting, meaning that, gas and groceries aside, I was only able to make purchases on Sundays. So from Monday to Saturday I could put anything on a list or my online shopping cart, but I could only purchase them on Sunday. Once I saw those little purchases adding up in my cart, I realized just how much money I had been spending without realizing it.
With the end goal in sight but not quite in my reach, I decided to transfer the remaining balance to another card, paying a 3 percent transfer fee. Seeing as I’d been saving 5 percent on most expenses, I consider that a net gain.
Canceling a card hurts your credit if you cancel an older card or if it provides a large amount of credit. Your credit age is a medium-impact factor on your credit, according to CreditKarma.com, so by opening three new cards, my credit age went from six+ years to just over two years, and my credit from excellent to average.
After running the numbers, I decided to cancel my Diamond card, since it was only slightly older than the others, and didn’t provide any additional benefits now that the promotional period is up.
But if having an extra amount of credit is what’s keeping your score high, then by all means, keep the card, says Priya Malani, a founding partner of Stash Wealth. “While your credit score will likely take a hit when you rack up a balance to get you through your bind, ultimately, having access to extra credit will have a positive impact on your score once you pay the debt back,” Malani says. “Why? Because a major component of your credit score is something called your credit utilization ratio (CUR). Your CUR is calculated by dividing how much credit you are using by how much you have available to you.”
CreditKarma also has a great tool that allows you to simulate how changing certain factors will impact your credit.
Absolutely. While I am not proud of owning this much debt, I am proud that I am not owned by it. Going through this process not only bought me time, but it changed my spending habits for the better.
Want to learn more about debt? Ask a friend. Seriously—if we don’t talk about it and share information, we’re not going to get that far. Need some money buddies? Join the Girlboss community! Reminder: Always speak to a licensed financial services provider or specialist before making decisions that could affect your financial wellbeing.
This story was originally published on May 22, 2018. It has been updated (and will continue to be updated) to include new tips, advice, and guidance, to ensure we are always giving you the best, most valuable resources.
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