Colleen's Credit Calamity

by Sam10060

Colleen the Card Carrying Collie's mother never explained credit cards to her.  She just said they were "bad".  This was also the word they used to describe mama's credit when they turned her down for her dream job.  They cited the same reason when they told her she couldn't have the house that she wanted, the one with the big yard.  Colleen saw how many houses there were up on that hill and realized that every single person up there got told yes.  What were the hill folk doing differently?  For one thing none of them were paying with cash at the register.  None of them were being forced to put some of their groceries back like Mama had to sometimes.


Colleen the Card Carrying Collie earned her namesake when she started emulating the people she saw as successful.  Colleen quickly fell in love with credit cards. Now when she wants to buy something people are always telling her yes.  She can have whatever she wants.  She likes that she can spend her money before she even earns it.  In time she spends herself more than a month behind and so she stops paying off the full statement balance each month.  This is when the interest charges kick in.

Credit Cards are a form of revolving credit  that are designed to make purchases that you intend to pay off within a month.  You can earn rewards points on purchases and build a respectable credit score and as long as you pay off the full statement balance you can avoid paying interest as well.  The bank is happy too because they charge merchants fees to process your card.  Everyone wins.  Where one stops winning the credit card game is when they stop paying the full statement balance every month.  If you are paying the minimum payment on your credit card you are losing the credit card game.  If you have stopped making payments you have rage quit the game, flipped the table and gained quite the reputation for yourself.  This is why no one invites you to birthday parties anymore.

Colleen was losing the credit card game.  To her credit she payed her minimum payment on time loyally every month.  Most of the payments went to interest, but a minimum payment of $35 wasn't a large portion of her monthly income.  Colleen opened a second card so that she could continue buying stuff without paying for the other stuff she already bought.  My prophetic readers I think you may see where this is headed.  It didn't take long before Colleen the Card Carrying Collie was up to her fluffy ears in high interest credit card debt.

During this time Colleen the Card Carrying Collie learned some hard lessons about credit cards.  Having a high credit limit doesn't create wealth.  You are going to have to pay all that money back.  No matter what payment method you choose you still have to spend less money than you make.  The first and most important rule of money is to spend less money than you make.

If you know you won't be able to pay off your credit card balance by the end of the month consider getting a lower interest rate by refinancing to a personal loan or by performing a balance transfer to another credit card.  If you are carrying a balance from month to month you are in a debt emergency!  If you are unable to qualify for refinancing stop all spending and pay down your cards starting with the highest interest rate first.  If you do qualify for a refinance you are still in a debt emergency and must still stop spending;  On the bright side you will get out of the debt emergency faster because less of your payments will be going towards interest.

Refinancing is when you take out a new credit account to pay off an existing credit account.  Has your short term credit card debt irresponsibly turned into intermediate term debt that is carrying over into next month?  Why not take out a loan at a lower interest rate to pay off your credit card before the next due date?  This will typically raise the minimum monthly payments.  This is actually a good thing.  If you were paying the bare minimum you needed someone to come by and benevolently punch you in the purse.  The more you pay each month the faster you get rid of the payment altogether.  The faster you get rid of the payment altogether the less money you pay in interest over the life of the loan.

In the end Colleen the Card Carrying Collie was saved by performing a balance transfer to another credit card.  She knew she was in too deep when she started to overdraw her checking account.  At the edge of her sanity she felt the strain of being inexorably drawn towards the second circle of bank hell. Before things could get any worse Colleen went inside her local branch to talk to someone about it.  Just like mama would have done.

Barry the Banking Bison explained that the problem was that Colleen owed other banks all this money when she could owe that money to the Bank of Barry the Banking Bison.  He could help her correct this error by opening a new credit card and immediately maxing it out.  I know this seems like a counter intuitive way to get out of credit card debt, but just stick with me for a second.  So after we immediately max out this new card we use the funds to pay off all of your old credit card debt.  Because Colleen had good credit Barry could offer her special terms on the balance transfer.  There would be an introductory period where there was no interest charged, however there would be a transfer fee charged up front.  The small fee was way less than Colleen was currently paying in interest so she happily agreed to the balance transfer.

The introductory period gave Colleen a goal, she wanted to pay off the whole amount before the rate skyrocketed up to a standard credit card interest rate.  She diligently scraped the money together each month to keep her on pace to pay off the full balance before the introductory period expired.  Although a balance transfer worked well for Colleen there are many different strategies on getting out of credit card debt and it pays to research all of your options.  Do this sooner rather than later.  You are getting charged interest right now!

There is no reason that you should ever be paying credit card tier interest rates.  You have the power to restructure your debt.  You have the even more powerful power of paying payments in full with money.  You have the most powerful power which is to choose how you're going to spend your money in the first place.  Use your powers wisely.

We hope you learned something about credit cards today.  Join us next time as Larry the Lexicon Llama explains the difference between revolving debt and term debt.