Thursday, July 17, 2008

Taking Back Personal Finance (Part I)

My household currently runs on one income. If we lived in the Midwest, we could probably get away with that. Living in Boston on one income is an entirely different thing. The cost of living is very high; I remember being stunned to learn that a friend of mine in Texas pays less on her monthly mortgage for her three bedroom house than I do for a tiny one bedroom apartment in rent.

And so, inspired by the personal finance site, Get Rich Slowly, I have begun to look seriously at my personal finances. My goal is to get rid of all of my debt, build an retirement savings account, and start saving for a condo.

1. Debt

When I was in college, I fell for a credit card offer from American Express Blue. It had a student interest rate of 3%, and I signed up for it. Like many students, I put a little more on it than I should, and I was happy to have a line of credit at my disposal. My first mistake was signing up for a credit card with a part time job income. My second was not reading the fine print, and not taking the time to learn about how credit cards really work. My third was actually using it.

I didn't pay any attention when, following graduation (when I was no longer a student), my interest rate soared from 3% to 35%. I was paying as much as I could every month, and yet the balance seemed to grow ever bigger. I made some good big purchases (a digital camera) and some very bad big purchases (membership to the Dahn Yoga center--note: they are actually a cult). I've had a very expensive education, as my Dad puts it. All of this is entirely separate from my student loans that I'm also repaying, another form of expensive education.

So, two years ago, I got an offer from my bank (I switched from Bank of America to Citizens Bank) for a credit card with a small line of credit when I opened my checking account. They offered my 0% interest for one full year, and a variable rate of 8% after the year was up. So I opened the account and put half of my AmEx balance on it. I kept my eyes open for another card offer in the mail, and found one for a Trinity College branded Visa with the same deal, but the post-1 year rate was 13% fixed. Certainly better than 35%, and the program also allowed for a percentage of my purchases to support my alma mater.

In March this year, I read an article in Lola by Belinda Fuchs. Entitled "Mani-Pedi or Mortgage?" it told the story of one of Fuchs' clients who had a lot of debt because she spent her money on designer clothes and Prada bags instead of her credit card debt and mortgage. While it was inspiring (I cut it out and it hangs on my bulletin board over my desk), I learned that one way the client cut down on her debt was to call her credit card company and ask for a reduced interest rate. Amazing! Her argument was her credit was good, and she always paid more than the minimum payment on time.

In the past few weeks I've put this advice to use. I called Citizens Bank, and with hardly any trouble at all, I got my credit reduced. Since the original 8% was variable, it had gone up to 14%. I got it reduced to 11% fixed. Then I called Bank of America, the holder of my other card. They refused to lower my credit, because I was only paying down the balance and hadn't made any purchases within six months. They offered to transfer the balance to a Gold Line Loan, but I didn't want that. I pressed them, and they still said no. So I called back Citizens, and they happily extended my credit line so I could transfer the Bank of America balance to that card. It's all in one place now, and consolidated. The best part was that Citizens appreciated my business and for the life of the balance from Bank of America, I have a 5.9% rate on the transfer amount.

Today I got my statement from Bank of America, and I called to close my account. I spoke to a rep and explained that I wanted to close it out, and of course they tried to change my mind. What I found most interesting was that when I called, the rep said I did qualify for an interest rate decrease. I was not impressed, and told them I had had enough of the runaround from them, and I just wanted to close the account, I had already transferred the balance, and I was done with them.

Sure I still have debt, but at least now it is consolidated, under a lower interest rate. In six months, I'll call back and see if I qualify for another rate decrease. So while I can't necessarily pay it all off at once, I am preventing the amount from spiraling out of control.

1 responses:

Paula said...

Nice post Kate. It sounds like you have good control over your finances. I had a nightmare with credit cards in the past and realised they had to go before I fell into the abyss of bad debt. I shopped around on price comparison sites like eComparison and managed to find a suitable consolidation loan. Now the cards are gone and have I just one payment to make each month making life far less stressful.


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