Another Small Savings, And A Dilemma

I got an offer yesterday from CitiBank. If I sign up for the "Payment Partners Program," it can help my debt reduction goals.

Here is how it works. I agree to make payments for 4 months on time and in excess of the minimum amount due. At the end of that time, if I've complied, Citi will credit my account with an additional amount equal to 20% of the amount I paid above the minimum due, up to $550 in "extra credit." If I pay $2750 extra, I'll get the maximum credit of $550. If I pay $100 extra, I'll get a credit of $20. I was already planning to send a little extra each month, so by signing up for the program it's like making an extra payment of up to $550, merely by doing what I am planning to do anyway. I liked the sound of that.

So, what's the catch?

They reassured me that nothing about the program gets reported to the credit bureaus, so the participation in the program itself will not adversely affect my credit score.

They also assured me there is no penalty for participation. It will not affect the interest rate on my account or any of the other payment terms.

They also reassured me that there is no penalty for noncompliance, other than not getting the "extra" credit, so if I fail to pay extra toward the debt, nothing bad happens. If I make a late payment, the usual consequences would apply, but nothing worse than usual. (The usual consequences are bad enough, really). Since I plan to pay on time, and was already planning to pay extra, I am confident I will earn the extra credit with no problem.

There are two things I have to give up to participate, both geared toward the idea that I want to make this a permanent debt reduction (I like the sound of that, too).

The first thing is, they will temporarily suspend my charging privileges on the account, so that I cannot make new charges or balance transfers to the card during the 4 month period. This does not bother me because the card is already charged up to its limit, and currently has a 0% interest rate on the current charges, but an 8.24% rate on any new charges, so I wasn't planning to use it, anyway. I am only planning to pay down the debt. Again, they reassured me that they do not report the suspension of charging privileges to the credit reporting agencies, so this will not harm me in any way.

The second thing I have to give up is a portion of my credit line. At the end of the program, they will reduce my credit line by an amount equal to the "extra" amounts in excess of minimum payments plus the 20% credit, so that I can't immediately charge the card right back up to where it was. Again, I wasn't planning to do that, so that's not a huge problem for me.

They also reassured me that they don't specifically report the fact or reason for the credit line reduction. BUT -- and this is a big "But" -- they do of course report the new credit line amount to the credit agencies.

This provision is the only potential pitfall. Your credit score is based in part on the ratio of available credit to actual revolving charges on each card. So, if you have a credit line of $10,000 and an outstanding balance of $5000, that results in a better score than if you have a credit line of $6000 and an outstanding balance of $5000.

Part of the way I was hoping to improve my credit score was by transferring some of the debt from my other card to Citi (which I did), and then paying down both credit lines to a better debt ratio. If Citi reduces my credit line, my debt ratio on that card does not improve.

On the other hand, Citi can unilaterally reduce my credit line any time they want to, even without "paying" me for the privilege. And if they are offering me this program, I am guessing that is exactly what they want to do. So I might as well get something for it.

So I signed up.

Wish me luck!!

A Small Savings

Lately I am constantly trying to find ways to save money.

Of course I use coupons and shop the sales at the grocery.

I've got the air conditioner set at 80 degrees. I tried 82, but my productivity sunk to unacceptable lows as all I could manage to do was sit quietly and drink iced tea, so I put the thermostat back down to 80.

And, although I couldn't convince my dear husband to get rid of cable entirely, I convinced him that we do not need the digital cable box for the tv in the bedroom. (Not the kind you hook up to your tv so you can get a signal even if you don't have cable; the kind your cable company gives you so you can get 1000 channels instead of the 99 your tv will pick up without the box). 99 channels seems like enough, to me, for a tv that we watch only for an hour or so before bed at night. He agreed. Savings: $6.00 per month. It's not much, but it's something.

On a side note, can you believe the cable company charges $6.00 per month, every month, to rent those cable boxes? That's $72 per year. I've had two of them for over 5 years; seems like they ought to be mine by now (can't imagine they'd cost more than $300 or so to buy new, if you could buy one), but they just keep charging me $6 every month. It's like the old days when you had to rent your telephone from the phone company, and they charged something like $12 a month for it. Then companies started selling telephones for $35 or so, and everyone went out and bought one and saved a bundle. I can't wait 'til you can buy the digital cable boxes for a reasonable price and stop renting them from the cable company!

Any other money-saving ideas or suggestions? Please leave me a comment.
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My Payment Goals

I visited Benjamin, over at Feed the Pig, to find out how long it will take me to pay off my existing debt.

Benjamin has a useful credit card payoff calculator, here.

I rounded up my debt amount, to $112,000. I estimated that I will continue to have new spending of approximately $1200 per month. This is the amount that I seem to spend regularly, even if I am avoiding frivolous spending. I spend this amount on:

1. After-school care costs for my two kids (I avoid late fees by having the amounts charged automatically to my card);

2. Gas, groceries, and online bill-paying for the electric or water bill, insurance, property taxes, and so forth, when I don't otherwise have the money to pay them because I have sent it all to my credit card companies for their minimum payments. (It is truly a vicious cycle.)

3. Internet access for my disabled friend (I know, I know, I should probably cut her off / make her pay her own, but it's only $20 per month, and it gives her access to her friends when she otherwise can't get out of the house. She can't afford to pay it herself, as she is on social security disability income. I know, I know, I can't afford it either.... it's a dilemma, isn't it? But I just can't stand to cut her off, so I won't).

4. Clothing and shoes for my kids and (rarely) myself. Since I never have any money in my bank account, the credit card is the only way I can ever buy these necessities. And I haven't gone clothes-shopping just for fun for at least a year. I have only bought things we truly need, such as when my kids' shoes are falling apart, or their pants no longer fit them.

Benjamin advises me that if I want to pay off this amount of debt in 60 months, I need to send $4,035 per month to my creditors, rather than the current minimum payments of $3,700.

If I continue sending the current minimum payments of $3,700, it will take 76 months to pay my debt -- an additional 16 months!

16 months x $3700 = $59,200

$335 x 60 = $20,100.

So by paying an extra $335 per month, I will pay the total debt down 16 months sooner, and will save $39,100.

If I can find the extra money, I definitely should do that.

Of course, we come back to the initial problem that I haven't been earning enough to even make the minimum payments each month, so I may be pie-in-the-sky dreaming to think I can come up with the minimum payment amounts plus an extra $335.

But I will have to try.

And now I am going back to work - you know, to earn that money!

Every Little Bit Helps

As I've mentioned, I am desperate to reduce my debt.

I called all my credit card companies and asked them to reduce their interest rates. I didn't spend a lot of time or energy arguing with any of them, and I went into it assuming I would get a "no" answer from all of them, as I have had several late payments recently. Plus, I find it easier to expect the worst and avoid disappointment, rather than getting my hopes up and feeling crushed if it doesn't work out. But, as they say, "nothing ventured, nothing gained." So I tried.

My basic approach was as follows (after wading through the automated systems and entering credit card numbers and telling them my secret codes and so forth to reach a live person):

Credit Card Company Representative (CCCR): How may I help you today?

Me: Well, you could help me a lot by lowering my interest rate to something more reasonable. Your cost to borrow money is at an all-time low, and I was hoping you could pass along some of the savings.

CCCR: Well, let me just check your account on the computer, please hold for a minute....

As expected, most of them came back from reviewing my rather sad credit history and said "no." But one said "yes," and reduced the rate by 2% (14.24% down to 12.24%). Not a lot, but better than nothing.

I owe $11,500 to that creditor.

According to bankrate.com's credit card calculator, if I continue to pay $230 per month for that card (my current minimum payment), it would take 76 months to pay it off at 14.25% interest, and 70 months at 12.25%. So by lowering the interest rate, I saved 6 months of payments. 6 x 230 is $1380 over the life of the loan. Not bad for a ten minute phone call. Not bad even for the hour I invested in calling all my credit card companies. Yay me!

For the ones that said "no," I did ask, "why not?" and mostly they said due to the recent history of late payments. I asked when it would be useful to inquire again, and most said to check back when I had 6 months of timely payments. So, I'll stay on top of my payments, and try again in a few months. If I could just save a few percentage points on each card....

I wonder if I will do better if I try that "power of positive thinking" approach, and go into it expecting a "yes" from each creditor?