April 2,2009
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Finding the Right Credit Card Balance, Pt.3
The big stuff.Large purchases: Never leave yourself cash-poor. Still, it's wasteful to hoard cash while drawing little or no interest and paying 17% on a credit card. Strike a balance of security vs. practicality. Consider a year to be the maximum and 6 months to be the minimum. Set enough cash aside to provide for likely events that could take place in that timeframe. Then, based on the best credit card interest rate you can get, how much cash to draw out. If the interest is low (say 4% or less), then keep enough cash in the bank to cover you for a year. If the interest is high (19%), shorten your cash reserves to only cover a six-month period. Remember, you can always pay that cash toward the credit card but, the converse is not true. Turning a credit card into cash is either very expensive or takes a long time. In any case, don't drain all of your cash. Always leave some in reserve.
Unscrupulous credit card lenders: Certainly there are pitfalls out there. A person with a high credit card balance they can't pay down is somewhat at the mercy of these lenders. There may be some relief soon if Senator Dodd's credit card reform bill passes in Congress. (read all about it in the article series entitled: "What is Sen. Dodd's CC Reform Bill About?". It could be only days away, in fact. But, until we have the bird in hand, we do well to learn protective tactics in the meantime. This site has many fine articles, explaining how to do that, like: "Tending to the Credit Card Fine Print", "Guidelines to the CC Fine Print" and "How Does the CC Rating System Work?".
Facing bankruptcy: Join the club but, beware...the road in is getting congested. For the first time, perhaps ever, credit card bankruptcy is eclipsing all other causes for personal bankruptcy. Nobody likes it and it's not a fun ride. But remember that credit card dept is unsecured. That's why card lenders squawk the loudest when bankruptcy approaches. If they don't, they'll be the last ones paid, if at all. Don't be intimidated into giving up your cash, you're gonna need it. Neither try and beat the system. Nearly all the tricks have been figured out. Best advice here is to read the article entitled: "The Congested Highway to Bankruptcy." And conserve your cash.