Pay it forward: Attack your debt twice a month
Posted
Jan 25 2008, 11:37 AM
by
Donna Freedman
This post comes from freelance writer Abby Freedman, daughter of Smart Spending blogger Donna Freedman.
Deep, dark secret time: My mother writes for Smart Spending and I am in credit card debt.
Assuming you haven't fainted dead away, let me explain.
My fiancé has an inherited calcium deficiency that's been exacerbated by treatment for a couple of other health problems. His teeth were literally crumbling away by the time I met him. Last spring, he made an appointment with an oral surgeon and a denturist.
Since we didn't happen to have the needed $8,500 lying around, we started researching credit card deals. We wound up putting about two-thirds of the cost on a new credit card that offered 0% percent interest for six months. The rest was paid with "convenience checks" from my existing credit card at 3.99% for six months.
Incidentally, we did check out the regional school of dentistry. It was cheaper, but offered only local anesthesia -- not advisable in this particular case.
The expenditure was a medical necessity. I knew that. But I was horrified by the idea of carrying a balance. Each credit card statement was like a wound that had scabbed over and kept reopening. The trauma was compounded, as it were, by the fact that I was raised with a no-debts credo.
The debt that wouldn't die
Even for high earners, $8,500 is a lot of obligation -- and between us, my fiancé and I clear only about $3,000 a month. Our rent takes up more than one-fifth of that amount, and a bunch of our health-related expenses aren't covered by insurance. (We make quite the sickly pair, since I experience nearly constant exhaustion and frequent illnesses because of a neurological condition.)
And did I mention his student loans?
Suddenly we were facing a gigantic balance each month but had a limited amount of money to throw at it. So I tried a new tactic: making a card payment twice a month, one with each paycheck. This has allowed us to make much more headway in resolving our debt, keeping us far more positive, cheerful and, above all, frugal.
Pay now and pay later
If you pay twice a month, it's essential to keep an eye on the calendar because it's possible to pay twice a month and still "miss" a payment.
For example, our most recent statement was dated Jan. 21, and is due on Feb. 15. We made a payment on Jan. 18 (the second one that month), which the bank marked down as Jan. 22. Technically, however, the payment was made on the 18th, and therefore the credit card company does not consider this as a payment against the January statement. So if I neglect to pay again before Feb. 15, I'll be hit with a late fee.
Making two payments is a big psychological boost, but there are also a couple of financial reasons to pay twice a month. Money sitting around in your account for almost a month tends to disintegrate slowly through small purchases. You meant to pay $800 against the card that month, but when the due date rolled around, a bunch of little (and probably unnecessary) expenditures have nibbled away at your bank balance and you wind up paying only $600. So if I pay as soon as paychecks hit the account, I can't fritter away a chunk of the cash.
In addition, semimonthly payments keep the overall balance lower for interest purposes. One of the current favorite tricks of card companies is to have your interest accrue daily based on your current balance. The more often you pay down, the less of a balance there is to spawn interest. (For more sneaky credit card tricks, read Liz Pulliam Weston's article at MSN Money.)
Envisioning a zero balance
To clearly delineate our goals, I started a credit card countdown on a dry-erase board. With every payment, I cross out the old balance and write the new one underneath. Then I add up the payments for an overall total.
Having the goal in sight makes our progress seem more tangible. When we are feeling disheartened, we can glance at the board and remember that indebtedness isn’t forever.
This has been a difficult experience, but an educational one. We have learned to cope early on with sickness and serious debt, two relationship tests most young couples don't face right away.
Having a strict budget plus the goal of financial freedom is helping my fiancé learn to curb impulse spending. He now says things like, "That (whatever) would be nice, but I don't need it." Before he met me, he had pretty much assumed he'd always be in debt.
And me? I've learned that sometimes debt happens but it is not the end of the world.
Our balance is just under $2,500 and we're on track to pay it off by the time we get married in May. If all goes well, the last of his student loans will be paid by the end of the year.
After that, we’ve promised ourselves a moderate indulgence, possibly something in the electronics family. We go back and forth on the specifics.
But whatever it is, you can bet we won’t be putting it on a credit card.
