Okay…I read a bunch of blogs everyday, including those listed on the right side of this page. One that I read is Credit Card Victim and there is a post there that I wanted to reply to, but I can’t cause I am not a registered user. So, I will reply here.
Over at CCVictim the author takes issue with one of my previous posts about moving debt around, via multiple balance transfers. I’d like to take this time to further state my points, with some clarifications.
1. An initial move of credit balances to lower-interest rate cards is okay, even a good deal.
2. A subsequent movement or two, between one or two, or even three cards, I can live with.
3. Here is the fundamental issue…AS LONG AS you can continue to move your balances back and forth and back and forth, you do not have to deal with your debt.
4. Dealing with the basic problem, not interest rates, is the concern of this blog.
5. Debt, while beneficial in certain, limited situation, can be very, very harmful in many, many situations. Kinda like fire. Fire is nice if it keeps you warm. It is evil if it burns down your house. SOOO…how do we handle fire? Carefully…we don’t play with matches!
6. Check this out. Say you have 1000 bucks at 10 percent, and 1000 bucks at 0 percent, and you want to pay 100 dollars per month. Okay, here are those 2 basic charts:
| Month | Payment | Interest Paid |
| 1 | $100.00 | $8.33 |
| 2 | $100.00 | $7.57 |
| 3 | $100.00 | $6.80 |
| 4 | $100.00 | $6.02 |
| 5 | $100.00 | $5.24 |
| 6 | $100.00 | $4.45 |
| 7 | $100.00 | $3.65 |
| 8 | $100.00 | $2.85 |
| 9 | $100.00 | $2.04 |
| 10 | $100.00 | $1.22 |
| 11 | $48.58 | $0.40 |
| Month | Payment | Interest Paid |
| 1 | $100.00 | $0.00 |
| 2 | $100.00 | $0.00 |
| 3 | $100.00 | $0.00 |
| 4 | $100.00 | $0.00 |
| 5 | $100.00 | $0.00 |
| 6 | $100.00 | $0.00 |
| 7 | $100.00 | $0.00 |
| 8 | $100.00 | $0.00 |
| 9 | $100.00 | $0.00 |
| 10 | $100.00 | $0.00 |
| 11 | $0.00 | $0.00 |
Okay…the first chart shows that, at 10 percent, it would take you 11 months to be debt free. You would pay a total of 1048.58. That is 48.58 in interest. The second chart shows that you could be debt free in 10 months, for a total of 1000 dollars, interest free. Big savings, RIGHT? Well, perhaps. But, really, really look. While your interest rate was a stated 10 percent, in actuality, on a per year basis, it was only 4.85%. In other words, because you were aggressively paying down principal, the effect of interest was lessened.
The problem with most debt reduction strategies, they only use math, and not the emotional strength of momentum. It’s like walking to lose weight. Will I burn more calories if I walk as fast as I can, for 4 miles, the very first day I do walking? Of course I will. But, I might get so tired out from this, that I give up walking and quit, thus worsening my over-all health. But, what if I started out with an attainable goal, and worked up to 4 miles? Hmm…then I might stick to it. Finances are not all math.
CCVictim, we can move out debts around, we can rearrange them and create fantasy payoff plans, etc. etc. etc. We can get loans to pay them off in x number of years, or we can move balances after balances after balances. Yes, we CAN become victims of our credit cards. OR…we can take ownership of our financial disorder, and DO something about it. Get an emergency fund in place, attack the principal of our debt, and refuse to use our cards ever again. Please note, I AM NOT against finding the best rate for my debt. In fact, my credit card balance is at zero percent, and my 2 cars are less than 5 percent. BUT, if my focus is only on interest rate, and trying to shuffle my balance here and there and everywhere, then I never focus on the REAL issue, my actual debt. Perhaps, and this is entirely possible, that my first post failed to communicate my intent. I am not AGAINST finding a great rate, I AM against using the rate of our cards as an excuse for not attacking our debts. Every single extra cent that we put towards the principle goes to fight the good fight.
PS…I am not sure if I should spell it principal or principle, and am too tired to look it up. So, I went with one of each.
princi”pal”. he’s my pal. he’s my main MONEY MAN. that’s how i remember that money and the person running a school (not that women can’t be principals) is principal. Also, if you can use “single” between “every” and “day” and it make sense, then every day is two words. I use that every day (every single day). But people getting into debt is an everyday occurrence (you can’t really use “single” in the middle there.) Sorry. former grammar teach and that’s my pet irk!
I love your site. I just found it and can’t wait to finish catching up on all the posts. I’m excited that I found someone who believes as wholeheartedly as I do about being debt free. Way to go!