Battle of Debt Mountain

To begin, let me make one point abundantly clear.  Using credit cards is almost always a really bad idea.  Save up for a few months to buy that nice sectional (you know the one – fully reclining, refrigerated beverage bin, cup holders, speakers, feels like you are sitting on a cloud).  Pay with a credit card and you will nearly double the price.  Pay with cash, and you may be able to strike a deal.  Retailers always love cash on hand.  Large cash purchases can often be negotiated to a lower price.  Of course, they offer financing and accept credit cards; that snares them more sales from the suckers.  (Don’t be offended.  I myself was recently just such a sucker.  I find that a little knowledge goes a long way, and I will endeavor in this article to impart a bit of the knowledge I have acquired over the last few years.)

The sheer convenience of credit card purchases has lured millions of Americans into the deep sea of debt.  Resist the temptation of immediate gratification, and save.  Put the credit cards down, and slowly walk away!  There are but two reasonable excuses to use a credit card.

1) In an emergency where you do not have access to enough cash, but you absolutely need money.  I am not talking about cash advances – that is the worst thing you could do.  If you have zero cash, you are out of gas, and it is either buy gas with your credit card or sleep in your car, then use the card.  You had better be ready to write a check to the credit card company as soon as you get home, though.  With proper planning and preparation, of course, you will probably avoid situations such as this.

2) The only other reason to use a credit card is for leverage.  If you come across an opportunity that you are convinced will deliver you a return that is greater than the amount of interest you will pay, consider using a credit card.  You need to be certain that the investment is worth the risk, have no other source of capital to leverage, and be prepared to pay off the debt if the deal is a bust.  Most people receive scores of these “amazing offers” every year, and they are almost invariably sucker deals.  However, there are many good investments out there as well.  My advice is to be very open-minded about ideas, but very skeptical and scrutinizing about details.  If an offer sounds too good to be true… well, you know the rest.

Ask and You Shall (or May) Receive

When my mountain of credit card debt finally reached its peak, I followed a simple plan.  I decided I would pay my minimums, on time, if possible.  Then I would watch the balances as the mountain slowly eroded away.  As it turns out, the erosion was so slow that it could have been measured in geologic time, just like a real mountain.  Eventually, I realized that my plan was garbage.  I needed to declare war on credit card debt.

I talked to credit counselors, I read a glut of literature, and I asked several trusted people about the subject of debt elimination.  No one had any magic bullets that would vanquish my credit card debt with one shot.  However, I did come across a regular bullet that would at least help me put a few holes in it.

The Bullet: Ask for a better interest rate.  That's right, just ask.  Most credit card accounts are eligible for review every quarter or every six months, depending on the company.  Get into the habit of calling your credit card company or companies twice a year and asking them to reduce your Annual Percentage Rate, or APR.  Have a specific number in mind; it should be a significant reduction (especially if you have not previously had a rate reduction), but within reason.  For example, when I first began my war on debt, I had a card that had a horrendous 26.24% APR.  (I know, I know - believe me, I am ashamed.)  Here is the paraphrased transcript of the phone conversation I had with the representative.

Credit Card Guy: Good evening, Sir, how can I assist you tonight?
Me: I was calling to see if you could lower the interest rate on my card.
CCG: Let me access your account.  Okay, Sir, I see your account is eligible for a rate reduction.  We can lower your rate from 26.24% down to 22.74%.
Me: Hmm… I was really looking for something like 19.99%.
CCG: Hold on, Sir.  Okay, I don't have 19.99% available for you at this time, but I can offer you 20.99%.
Me: Woohoo!  I mean, uh, yes, that will be acceptable.  Thank you.

You see, right off the bat, they were ready to drop my interest rate 3.5%!  I pushed a little harder and they gave a little more.  The result was a 20% drop in the Annual Percentage Rate, and about $25 off my monthly minimum payments.  Of course, I kept paying the old minimum amount so that I could actually start winning the Battle of Debt Mountain.