Episode Transcript
[00:00:00] Speaker A: In this episode, we talk about ways you can know your relationship with credit card debt has gotten to the point of no return. And the pros and cons of two.
[00:00:07] Speaker B: Strategies to pull yourself out of the situation. Let's get started.
[00:00:11] Speaker C: Let's get some money from new money new problems. It's the new Money New Problems podcast, a show for successful professionals searching for the tools they need to navigate financial opportunities and obstacles they've never seen.
Negotiating compensation. Purchasing your first investment property. Helping your family with money. The highs and lows of entrepreneurship. New money brings new problems that require new solutions. Join us as we work through them together.
I'm Brenton Harrison and this is the New Money New Problems podcast.
[00:00:49] Speaker A: Hello, my name is Brenton Harrison of New Money new problems and your host for the new Money New Problems podcast.
[00:00:54] Speaker B: We are reaching the end of the summer.
[00:00:56] Speaker A: Our little one starts school next week, and I'll be transparent with you. I don't think that you are likely.
[00:01:02] Speaker B: In the mood for some long, extended.
[00:01:04] Speaker A: Episode, but I do want to talk.
[00:01:06] Speaker B: About something we've covered in the past.
[00:01:07] Speaker A: Which is credit card debt. If you go to our YouTube channel.
[00:01:10] Speaker B: And I'll put a link to the video in the show notes, one of.
[00:01:13] Speaker A: Our highest watched videos on our channel.
[00:01:16] Speaker B: Is about ways to get out of credit card debt. And you start to realize that, uh.
[00:01:20] Speaker A: If you're like me and you've struggled getting out of credit card debt in the past, it can seem at times like you're the only one who can't.
[00:01:26] Speaker B: Figure out a way to right size your cash flow. But the majority of the people that.
[00:01:31] Speaker A: I come across, even extremely high income.
[00:01:33] Speaker B: Earners, they uh, often struggle with credit card debt.
[00:01:36] Speaker A: And as a matter of fact, the amount that they owe just gets bigger and bigger and bigger based on the.
[00:01:41] Speaker B: Income that they earn.
[00:01:42] Speaker A: And of course thats all proportional. So in this episode, I wanted to talk about like a state of being.
[00:01:48] Speaker B: When it comes to your relationship with.
[00:01:49] Speaker A: Credit card debt because I think that one of the traps that you can fall into with the more money you make is you start to accumulate certain smaller debts like credit card debt. And there is the assumption, oh, I can take care of that with my.
[00:02:01] Speaker B: Bonus, or I can take care of.
[00:02:02] Speaker A: That with my restricted stock or oh, and towards the end of the year, im just going to buckle down, I'm going to pay it off. And you start to think about it.
[00:02:10] Speaker B: With a uh, lower sense of urgency.
[00:02:12] Speaker A: Than you did when you were making less money. So for example, if you were making $40,000 a year $5,000 of credit card.
[00:02:17] Speaker B: Debt was the end of the world. But if you're making $200,000 a year.
[00:02:21] Speaker A: You start to look at that $5,000 like, oh, I don't really have to pay that much attention to it because.
[00:02:27] Speaker B: It'S an amount of money you owe that you can now stomach without feeling like it has to be addressed. That's a really dangerous place to be.
[00:02:35] Speaker A: Because that 5000 can turn to 7500, that 7500 can turn to 1010 thousand, and then you start to get to.
[00:02:41] Speaker B: A place where it's not as easy.
[00:02:43] Speaker A: To just wipe that debt off your books.
[00:02:45] Speaker B: So before the break, I'm going to.
[00:02:46] Speaker A: Give you five instances, uh, where someone.
[00:02:49] Speaker B: Needs to right size or recalibrate their.
[00:02:51] Speaker A: Relationship with their credit card debt.
[00:02:53] Speaker B: After the break, I'm going to tell you some ways that you can get out of these situations or at least make some headway.
[00:02:58] Speaker A: And maybe all five of these are.
[00:03:00] Speaker B: Relevant to you, maybe just one of.
[00:03:01] Speaker A: Them is relevant to you, and all of them are not as urgent.
[00:03:05] Speaker B: The whole point of this is I want to identify both the bigger things.
[00:03:09] Speaker A: That are obvious when it comes to you needing to pay off credit card debt, but also some smaller states of.
[00:03:15] Speaker B: Being where you can get suckered into thinking that you're doing better than you actually are.
[00:03:20] Speaker A: The first may seem like a small.
[00:03:22] Speaker B: Thing because most people don't worry about.
[00:03:24] Speaker A: It, but to me it is a.
[00:03:26] Speaker B: Very dangerous sign, and that is simply that you're paying interest on your credit cards at all.
[00:03:32] Speaker A: We've talked on this podcast about the fact that I think that for many high income earners, they place an outsized.
[00:03:38] Speaker B: Level of importance on their FICO score.
[00:03:40] Speaker A: Uh, and there are scenarios where, unless.
[00:03:42] Speaker B: You'Re applying for financing, some of the things that you do to maintain a.
[00:03:46] Speaker A: High credit score can actually be contradictory.
[00:03:49] Speaker B: When it comes to what gives you strong finances overall. But there is the simple truth that.
[00:03:54] Speaker A: Having a combination of a high income and a high credit score can put you in a position where you have more opportunities financially, even when it comes to opportunities to better manage your credit card debt. And when I come across a person who has a high income, but also has high credit card debt and they're.
[00:04:11] Speaker B: Paying interest on their credit card debt, I actually do ask to see their.
[00:04:15] Speaker A: FICO score, because when I look at.
[00:04:17] Speaker B: That FICO score, it's going to show me one of two things. Either they have a high FICO score.
[00:04:22] Speaker A: And that would give them the opportunity.
[00:04:24] Speaker B: To put their credit card debt in a position where they're not paying interest, or they have a low credit score, likely because of the credit card debt, and it is keeping them from the.
[00:04:34] Speaker A: Opportunities that could improve their relationship with their credit card debt. Now, the low credit score is something that has to be worked on. But if you have a high credit.
[00:04:41] Speaker B: Score and you're paying interest, to me, that just says you are getting used to something that should not be the norm.
[00:04:48] Speaker A: Because interest on credit card debt is.
[00:04:50] Speaker B: One of the most insidious forms of.
[00:04:52] Speaker A: Debt that you could possibly have. The interest rate is high. It's not tax deductible.
[00:04:57] Speaker B: It doesn't help you in any area of your finances. So the very presence of it is something that is a threat to the rest of your finances. And after the break, we're going to.
[00:05:05] Speaker A: Tell you two ways to get yourself in a position where you can either.
[00:05:08] Speaker B: Pay less interest or you can pay.
[00:05:10] Speaker A: No interest at all.
[00:05:12] Speaker B: But number one, you're paying interest on.
[00:05:14] Speaker A: Your credit card debt.
[00:05:15] Speaker B: Number two is your credit card bill.
[00:05:17] Speaker A: Is always a surprise.
[00:05:19] Speaker B: Remember, these things are not necessarily financial metrics. A lot of this is about a state of being.
[00:05:24] Speaker A: And if you're like me, you have.
[00:05:25] Speaker B: Been in scenarios where, you know, on a month to month basis, you're charging.
[00:05:29] Speaker A: More and more on your card, and you start to get to the point.
[00:05:32] Speaker B: Where you either forget how much you've.
[00:05:34] Speaker A: Charged or you're aware that it's more than you wanted. So you're dreading that moment where you have to log on to your credit card company and see what you owe. Uh, or the time that you're going.
[00:05:43] Speaker B: To get that email with statement balance for the previous 30 days. It's a miserable feeling. And only you can be honest and ask yourself the question, when I log.
[00:05:52] Speaker A: On to my credit card provider to see what I owe on my statement, is it a a, surprise?
[00:05:57] Speaker B: B, do I have a sense of dread when I log in? And if either or both of those.
[00:06:02] Speaker A: Are true, you're in a position where you need to make a change. Number three is your credit score would.
[00:06:08] Speaker B: Be high if not for your credit utilization.
[00:06:11] Speaker A: If you're looking on screen, you're looking at a familiar breakdown, which is the percentages that make up a FICO credit score.
[00:06:17] Speaker B: We've gone through this in past episodes.
[00:06:19] Speaker A: Where 35% of your score is made.
[00:06:21] Speaker B: Up of your payment history. Just do you pay your bills on time? 10% of your score is made up of your mix of credit. So do you have just credit cards? Do you have credit cards and car loans? What have you?
[00:06:32] Speaker A: 15% is the age of your credit and 10% is new credit. So if you're running those numbers in.
[00:06:38] Speaker B: Your head, that is 70% of your score.
[00:06:40] Speaker A: And I listed those numbers first because the remaining 30% is taken up by credit utilization.
[00:06:46] Speaker B: Credit utilization is a reflection of the amount of your available credit that you have borrowed at a particular point in time. We will put a link in the show notes to a video that walks through the details of exactly how credit utilization is calculated and when it's calculated, most importantly. But credit utilization is the only part of your score that can be radically improved within a 30 day time.
[00:07:10] Speaker A: There are elements of your score that.
[00:07:11] Speaker B: Can be destroyed in a 30 day time, but credit utilization is the only one that on a month to month basis, you can see real positive gains.
[00:07:21] Speaker A: In this area of your credit.
[00:07:22] Speaker B: And the reason that's important is because credit utilization only reflects the percentage of.
[00:07:26] Speaker A: Available credit you have in the area of revolving credit.
[00:07:31] Speaker B: After the break, we'll talk about the.
[00:07:32] Speaker A: Difference between revolving debt and installment debt.
[00:07:35] Speaker B: But revolving debt is stuff like your credit cards. And if your credit utilization is so poor that it is the one thing that is dragging down your score, then that is the area that's telling you there's a sense of urgency where you need to put yourself in a position where as long as you can fix your credit utilization, it could be the difference from taking you to the six hundreds, to the 700s, or the higher that score goes, the more opportunities you have until you reach the point of around 750 or so, which is where.
[00:08:06] Speaker A: You top out in terms of the.
[00:08:09] Speaker B: Best interest rates, the best terms that most lenders will have.
[00:08:12] Speaker A: But if you have a low credit score, you check your credit karma, you.
[00:08:15] Speaker B: Check your experian, and the only reason you can find for wide that score is low is your credit utilization.
[00:08:21] Speaker A: You've reached a point of no return.
[00:08:23] Speaker B: Number four is you have to transfer money from one account to the other to cover your credit card bill.
[00:08:29] Speaker A: And this is kind of the reverse of somebody who's paying interest on their credit card.
[00:08:32] Speaker B: But this is more about having a.
[00:08:34] Speaker A: False sense of security because you can.
[00:08:36] Speaker B: Trick yourself into being comfortable because you're technically not paying interest on a credit card. But if you find yourself having to constantly dip into your emergency reserves to.
[00:08:44] Speaker A: Cover your credit card bill, then that's not necessarily an improved state of being. You're still in a scenario where you're not managing your cash flow in a.
[00:08:53] Speaker B: Way where you can cover your expenses.
[00:08:54] Speaker A: Month to month, you're having to dip.
[00:08:56] Speaker B: Into your reserves to do so.
[00:08:58] Speaker A: Which means that we have not just a credit card problem, but also a.
[00:09:02] Speaker B: Budgeting problem that needs to be addressed.
[00:09:04] Speaker A: And maybe that budgeting problem isn't a.
[00:09:06] Speaker B: Matter of you being reckless. It could be a matter of there just not being enough income coming into the house.
[00:09:11] Speaker A: But until you reset, realize that you're not in the right position and start.
[00:09:15] Speaker B: To figure out whether it is a budget or an income problem. You'll continue on that hamster wheel without seeing a change.
[00:09:23] Speaker A: And then finally, number five is your.
[00:09:25] Speaker B: Savings each month happen after you pay.
[00:09:27] Speaker A: Your credit card bill, if they happen at all. And that's pretty straightforward.
[00:09:31] Speaker B: I don't think it needs any explanation.
[00:09:33] Speaker A: So we're going to jump into the.
[00:09:34] Speaker B: Break, and after the break, we're going to talk about two different strategies that.
[00:09:37] Speaker A: You can use to put yourself in a better position.
[00:09:41] Speaker D: This is the new Money New Problems podcast, a show for successful professionals searching for the tools they need to navigate financial opportunities and obstacles they've never seen. We'll be right back.
[00:10:00] Speaker C: Are you wondering what new money problems you might be overlooking in your financial life? If so, we've got great news.
We've crafted the new money new problems gap finder to identify potential weaknesses in your finances in areas ranging from budgeting, investments, insurance, and even the threat your extended family's finances could pose to your household. Uh, please head to new moneynewproblems.com gapfinder to complete it today. Again, that's new moneynewproblems.com gapfinder. To take the assessment.
[00:10:39] Speaker D: You'Re listening to the new Money New Problems podcast. Subscribe now at New Money newproblems.com. welcome back.
[00:10:49] Speaker A: Before the break, we talked about a.
[00:10:51] Speaker B: State of being, or states of being.
[00:10:52] Speaker A: That lets you know you need to change your relationship with your credit cards.
[00:10:56] Speaker B: Now, let's talk about two different strategies to do so.
[00:10:58] Speaker A: The most common, uh, debt repayment strategy when it comes to credit cards is the debt snowball or the credit card snowball.
[00:11:06] Speaker B: I told you, we put the link.
[00:11:07] Speaker A: In the show notes to the video that we've done on that in the past. In that video, we talk about the.
[00:11:11] Speaker B: Debt snowball at length and talk about the two different methods that you can.
[00:11:14] Speaker A: Use to do it, either the highest interest method or the lowest balance method. But in this episode, we want to talk about the pros and cons of two other strategies. And the first is personal loans. And the concept of using a personal loan to repay credit card debt is really simple.
[00:11:29] Speaker B: First, the biggest pro to having a.
[00:11:31] Speaker A: Personal loan as compared to a credit card is that a personal loan has.
[00:11:34] Speaker B: A defined payoff date.
[00:11:37] Speaker A: We talked about installment debt and revolving debt.
[00:11:39] Speaker B: Revolving debt, like a credit card, is debt that you can borrow over and over and over.
[00:11:43] Speaker A: If you have a $10,000 limit, you.
[00:11:45] Speaker B: Can borrow $10,000, pay it off, borrow $10,000.
[00:11:48] Speaker A: Again, a personal loan is considered installment debt. An installment debt gives you that money.
[00:11:54] Speaker B: One time and it tells you by this point in time that debt has to be repaid. So it both has a defined date of payoff and it also, the second benefit puts you in a position where.
[00:12:06] Speaker A: Installment debt is not reflected in credit utilization. So when you take out a personal.
[00:12:11] Speaker B: Loan and use it to pay down the credit card debt, you are essentially.
[00:12:14] Speaker A: When it comes to credit card utilization.
[00:12:16] Speaker B: Erasing that debt from what's used to calculate your score.
[00:12:20] Speaker A: Score even though you technically still owe the funds, you just owe them in.
[00:12:24] Speaker B: An area that's not reflected on that.
[00:12:26] Speaker A: Part of your FICO score. The final benefit to a personal loan.
[00:12:29] Speaker B: Is that the interest is often far below what you would see with a credit card.
[00:12:32] Speaker A: Now your payment is going to be.
[00:12:34] Speaker B: Significantly higher than what you would see.
[00:12:36] Speaker A: For a minimum payment with a credit card. Because with the minimum payment for a credit card, you can make that minimum.
[00:12:41] Speaker B: Payment and owe the same amount in.
[00:12:42] Speaker A: Credit card debt for the rest of your life. Whereas with a personal loan you're making that payment and you actually are paying.
[00:12:48] Speaker B: Down the interest and the principal that accrues.
[00:12:51] Speaker A: So it is a much bigger burden on your budget.
[00:12:54] Speaker B: But there is relief in knowing that when you make a monthly payment, your balance is actually being reduced in a substantive way.
[00:13:00] Speaker A: And if you're looking on screen, and we'll put this example in the show notes, you can see the example of.
[00:13:05] Speaker B: How a personal loan used to pay.
[00:13:06] Speaker A: Off credit card debt can both put.
[00:13:08] Speaker B: You a scenario where you pay lower interest, have a defined payoff date, but also immediately improve your credit card utilization.
[00:13:16] Speaker A: On screen we have an example of a person who has a $6,000 balance.
[00:13:19] Speaker B: On a credit card with a $10,000 limit.
[00:13:22] Speaker A: So at the start of this they.
[00:13:24] Speaker B: Have a 60% utilization ratio.
[00:13:26] Speaker A: Now let's assume that they take out.
[00:13:27] Speaker B: A $5,000 personal loan and they use.
[00:13:30] Speaker A: That $5,000 to pay down the credit.
[00:13:32] Speaker B: Card balance from 6000 to 1000.
[00:13:36] Speaker A: So this person doesn't owe any less.
[00:13:38] Speaker B: In total they still owe $6,000, but.
[00:13:40] Speaker A: They have shifted 5000 of that money.
[00:13:43] Speaker B: From revolving debt, which is reflected in credit utilization over to installment debt, which is not. So now at the end of this process, their credit utilization has gone from 60% down to 10%. A 50% reduction in utilization ratio immediately. And because credit utilization is assessed every.
[00:14:04] Speaker A: 30 days, this is the type of.
[00:14:06] Speaker B: Transaction that can show an immediate jump.
[00:14:08] Speaker A: In someone's FICO score just from moving.
[00:14:11] Speaker B: Money from one disadvantaged area to a.
[00:14:14] Speaker A: Place with a lower interest rate and.
[00:14:16] Speaker B: An end date that will definitively get them out of this credit card debt, hopefully once and for all.
[00:14:22] Speaker A: The second strategy that we're going to talk about is credit card surfing. And this is something that you really.
[00:14:27] Speaker B: Can only do if you're in a.
[00:14:28] Speaker A: Position where you already come into the.
[00:14:30] Speaker B: Process with a relatively high credit score.
[00:14:33] Speaker A: So when we talked about those states.
[00:14:34] Speaker B: Of being, and we said that your score is low because of credit utilization.
[00:14:38] Speaker A: It'S highly possible that you can't even.
[00:14:40] Speaker B: Do this strategy until your score improves.
[00:14:43] Speaker A: But the concept of credit card utilization is that if you have a high credit score and a high income, there.
[00:14:48] Speaker B: Are other credit card issuers who want your business. And to entice you to sign up for their car, they will often offer a signup bonus.
[00:14:55] Speaker A: And that sign up bonus could be.
[00:14:57] Speaker B: In the way of reward points that.
[00:14:59] Speaker A: You will get if you spend a minimum amount in an introductory period. But it also could be the opportunity.
[00:15:04] Speaker B: To transfer a balance from one card.
[00:15:07] Speaker A: Onto your new card and pay that debt down at 0% interest for a period of time.
[00:15:12] Speaker B: If you're looking on screen, you're seeing.
[00:15:14] Speaker A: An article that we'll link to in.
[00:15:15] Speaker B: The show notes that show some of the best balance transfer cards. And you'll see a city simplicity card that offers a period of 21 months where you can transfer balances and pay it down at 0% interest. A Bank of America card for 15 months. A Wells Fargo card with a balance.
[00:15:30] Speaker A: Transfer offer of 21 months.
[00:15:32] Speaker B: All of these companies are hoping that you will transfer the balance over. You won't pay it off during that introductory period and after it expires. They can simply now be the one that collects the interest on this debt that you've been holding for such a long time.
[00:15:46] Speaker A: But if you're a person who takes advantage of the offer, what you can do is you can continuously transfer debt.
[00:15:52] Speaker B: From, from cards with interest to the.
[00:15:53] Speaker A: Balance transfer cards, pay it down at.
[00:15:56] Speaker B: 0% interest to radically decrease the amount that it costs to pay off the debt and hopefully speed up the amount of time it costs to pay it off as well.
[00:16:04] Speaker A: And it's funny, because when people criticize.
[00:16:06] Speaker B: The balance transfer strategy, the thing that.
[00:16:08] Speaker A: Is most talked about is actually the area that I think causes the least amount of concern and that is the impact on your credit score. The fact of the matter is, if.
[00:16:17] Speaker B: You have a good enough utilization ratio, a strong payment history, a long credit history and a good mix of credit.
[00:16:25] Speaker A: Then one of the only things that will be negatively impacted by you continuously.
[00:16:29] Speaker B: Opening credit cards is the new credit increase, which is a very small percent of your score at 10% of your score.
[00:16:35] Speaker A: Now it is true that the age.
[00:16:37] Speaker B: Of your credit is reduced every time you open a new line of credit and that's 15% of your score. But if you have a long history with other cards and maybe you have.
[00:16:46] Speaker A: 20 different lines of credit open not.
[00:16:48] Speaker B: Just on credit cards, just in total.
[00:16:50] Speaker A: Then adding one card with a new date of birth is not going to.
[00:16:54] Speaker B: Have an outsize impact your age of credit either.
[00:16:57] Speaker A: As a matter of fact, there's an.
[00:16:58] Speaker B: Article on screen from a woman who.
[00:17:00] Speaker A: Writes for bank rate about why she opened 24 credit cards. There's another very popular personal finance writer.
[00:17:07] Speaker B: Uh, named Holly Johnson, who was well known for having over 20 cards herself and has a near perfect credit score.
[00:17:13] Speaker A: And it's because they're opening these cards.
[00:17:15] Speaker B: They'Re keeping their credit utilization low. They're making sure that they're always paying their balances off in full.
[00:17:20] Speaker A: And while you will see variations in your score, it is not as big an impact as people may make it seem. But the thing that is less talked.
[00:17:29] Speaker B: About and they should discuss is the true danger to me of the credit.
[00:17:32] Speaker A: Card surfing strategy is not having the.
[00:17:35] Speaker B: Discipline to pay off the card within the 0% interest period. Because now you functionally just opened another card and you haven't actually taken advantage.
[00:17:43] Speaker A: Of lowering your credit card balance at.
[00:17:45] Speaker B: A lower rate of interest. And I've seen that where someone says.
[00:17:48] Speaker A: Oh, I took this money, I uh.
[00:17:50] Speaker B: Transferred it to a balance transfer card. They didn't pay it down during that period of time and they either still get stuck paying interest or they have to open another balance transfer cardinal hoping.
[00:17:59] Speaker A: That another lender will give them the.
[00:18:01] Speaker B: Opportunity to do the same thing over and over again.
[00:18:04] Speaker A: But if you do have the discipline, there are a number of benefits that.
[00:18:07] Speaker B: You can find with the balance transfer strategy. And the first has to do with credit utilization.
[00:18:12] Speaker A: The fact of the matter is, when.
[00:18:13] Speaker B: You open a new credit card, it is a new form of revolving debt.
[00:18:17] Speaker A: And that card is given a new credit limit.
[00:18:20] Speaker B: And if you open a card and you don't borrow anything on that card, you have increased the total amount of credit available to you across all of your cards, but you have not increased the amount that you owe, uh, which means that your credit utilization will improve immediately. Another benefit to these balance transfer strategies is that there is typically a window.
[00:18:39] Speaker A: Of time where you can make multiple.
[00:18:42] Speaker B: Transfers and still get the 0% interest period. Some cards only allow you to do it once, but there are others where as long as you do it within.
[00:18:49] Speaker A: Twelve months or 15 months, you can.
[00:18:51] Speaker B: Make as many transfers as you need.
[00:18:54] Speaker A: Which means that by having that new card open, even if you don't have.
[00:18:57] Speaker B: Enough available on the balance transfer card.
[00:18:59] Speaker A: To transfer everything at once, you can pay down that cardinal card and make.
[00:19:03] Speaker B: Multiple transfers from the other cards as you do so.
[00:19:07] Speaker A: So maybe you have $5,000 available onto that card, but you have $10,000 of.
[00:19:12] Speaker B: Debt that you're trying to transfer over.
[00:19:14] Speaker A: Well, you can make payments on that.
[00:19:15] Speaker B: Balance transfer card and pay down a couple thousand dollars.
[00:19:18] Speaker A: You can transfer a couple thousand dollars from those interest paying cards in another transfer until you get to the point where you need to be. If you're looking on screen, we're going.
[00:19:27] Speaker B: To take that same example that we.
[00:19:29] Speaker A: Used in strategy number one where we had a person who has $6,000 that they owe on a $10,000 limit card.
[00:19:36] Speaker B: And instead of using a personal loan, we're going to use a balance transfer or a credit card surfing strategy to reduce some of their debt. So right now we have one card.
[00:19:45] Speaker A: With a $10,000 limit and we have $6,000 that we owe.
[00:19:49] Speaker B: We're going to open a second card.
[00:19:51] Speaker A: That also has a $10,000 limit.
[00:19:53] Speaker B: So the very first thing that you see is right now with one card.
[00:19:57] Speaker A: Their utilization ratio is at 60% on a $10,000 limit. By opening that second card it increases.
[00:20:04] Speaker B: Their credit limit to $20,000. Which means that $6,000 no longer means a 60% utilization ratio. It means a 30% utilization ratio across their entire credit limit.
[00:20:17] Speaker A: Now, when you make these transfers, it.
[00:20:18] Speaker B: Typically costs a small fee. Most lenders will charge either 3% or 4.5% to bring the money over on the initial transfer.
[00:20:26] Speaker A: So we're going to transfer $3,000 from.
[00:20:28] Speaker B: The original card onto the balance transfer cardinal. We're going to pay 3% fee which is $90 for the transfer. So now on the balance transfer card.
[00:20:37] Speaker A: We owe $3,090 of our $10,000 credit limit, which means in total the 6000 we owed on the original card has.
[00:20:46] Speaker B: Now been reduced to $3,000 out of a $10,000 limit, which is a 30% utilization ratio.
[00:20:52] Speaker A: And our new card has a $3,090 balance on a $10,000 credit card limit.
[00:20:58] Speaker B: Which means a utilization ratio of 30.9%.
[00:21:02] Speaker A: We have both improved our total credit utilization and improved the utilization that we.
[00:21:07] Speaker B: Have on each respective card simply by opening the second one to facilitate this strategy.
[00:21:13] Speaker A: Now, I'm not here to tell you.
[00:21:14] Speaker B: Which one of these is right for you. That's something that you'd have to sit.
[00:21:17] Speaker A: Down with your budget, with your credit card debt, and take a look and.
[00:21:20] Speaker B: Be honest with yourself to figure it out. I'm more interested in the first half of this episode where you decide if you need to do either strategy because.
[00:21:27] Speaker A: You may be the type of person.
[00:21:28] Speaker B: Who is just killing it with their credit cards. You never have a balance.
[00:21:32] Speaker A: You can handle it with your cash flow. You take your points and go home. But if you listen to the first half of this episode and any one of those five things were something that you identified with, then is giving you.
[00:21:42] Speaker B: A hint, or I'm giving you a.
[00:21:44] Speaker A: Hint that something needs to change. And if it's any encouragement, I have been through every one of those five steps, so I know of what I speak. But I also know that there is no better feeling than getting out of.
[00:21:55] Speaker B: Those states of being and on the.
[00:21:57] Speaker A: Right side of your relationship with credit Cardinal. I'll talk to you next week from.
[00:22:04] Speaker C: New money new problems. This was the new Money New Problems podcast, a show for successful professionals searching for the tools they need to navigate financial opportunities and obstacles they've never seen.
