589-How_to_Manage_Cash_While_You_Pay_Off_Your_Credit_Cards
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00:00:27.300 | Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge, skills, insight, and encouragement you need to live a rich and meaningful life now,
00:00:36.700 | while building a plan for financial freedom in 10 years or less.
00:00:40.300 | Today, we continue our series on credit cards.
00:00:43.300 | This week, we are enjoying and advertising the new launch of my newest course called "How to Borrow Money Safely and Never Pay Interest Using Credit Cards."
00:00:53.500 | And on Monday, we began with one of my arguments in favor of credit cards.
00:00:58.500 | That argument was about the safety of credit card debt.
00:01:02.500 | On Tuesday, I shared with you an additional argument called "Credit Card Loans Can Provide a Way to Privately Purchase Goods and Services."
00:01:08.500 | Now, there are three more arguments for credit cards extensively discussed in the course, as well as two extremely important arguments against credit cards.
00:01:18.100 | Because although I stand entirely behind the idea that credit cards can be very safe, we must of course acknowledge that credit cards can be very dangerous and risky, and they have unique risks that need to be considered.
00:01:31.100 | The second thing is, although credit cards can be very cheap, they can be extremely expensive, and they have important costs that need to be considered.
00:01:39.100 | Now, you are a sentient, knowledgeable person. You know those as obvious, but don't overlook them because they're obvious.
00:01:47.100 | But with the strategies that I outline in the course, you can put in place measures of safety to protect yourself.
00:01:53.100 | Now, in today's episode, I'm going to share with you another audio excerpt from the course, and this is much later in the course.
00:01:58.100 | And it's called "How to Manage Cash While You Pay Off Your Credit Cards."
00:02:03.100 | Most people who wind up in credit card debt get there out of desperation, and they get there too late.
00:02:13.100 | And they wind up using up all of their money, which makes them exclusively reliant on credit cards, which puts them in a very dangerous position, as you'll hear in this audio excerpt.
00:02:25.100 | I want you to know how dangerous that position is so that if you are ever in a position where you think you might go into credit card debt, that you go there intentionally while safeguarding all of your other cash for maximum safety.
00:02:46.100 | Now, I'll play this audio for you. Just a reminder, I really want you to purchase this course. It's a great deal.
00:02:52.100 | Go to RadicalPersonalFinance.com/CreditCardCourse. Link in your notes for today's show.
00:02:58.100 | RadicalPersonalFinance.com/CreditCardCourse. Remember to use the coupon code "CreditCard10."
00:03:04.100 | And until October 15, 2018, all this week, that code will save you $10 off the cost. The cost is $39.
00:03:12.100 | This week, it'll only cost you $29, which is the interest payment at 18% of one month's interest payment on about a $2,000 credit card debt.
00:03:20.100 | So it's a great deal. It'll save you a ton of money to help you how to get that 18% interest down to 0%.
00:03:26.100 | Go and buy this week and make sure to do it quickly because on Friday this week, I'm hosting a live Q&A call, which is available to anyone who has purchased the course.
00:03:35.100 | I do intend to release that to you as a podcast episode here as part of my advertising and promotion for the course.
00:03:40.100 | But I really want to talk to you personally and give you specific advice for your situation on that Friday Q&A call.
00:03:47.100 | So go to that link, please, and purchase the course. And now enjoy this excerpt called "How to Manage Cash While You Pay Off Your Credit Cards."
00:03:55.100 | In this module, we'll discuss cash management strategies, how to manage cash while you pay off your credit cards.
00:04:02.100 | Credit can be very useful to you, but credit is actually the most useful to you if you are not entirely broke.
00:04:10.100 | When you are operating solely with credit cards, you're very vulnerable to disruptions. Very, very vulnerable.
00:04:17.100 | Consider this. A credit card company may at any time lower your credit limit, which would dramatically affect your credit score because your utilization ratio would go up.
00:04:29.100 | They will easily do this and they are entirely within their contractual right.
00:04:33.100 | They can look down and see that you have a $15,000 available credit limit and they can drop that to $500 in an instant.
00:04:41.100 | That could make a dramatic difference on your utilization ratio.
00:04:45.100 | You may be declined for an important 0% offer and have trouble getting a timely replacement offer.
00:04:51.100 | That's real trouble. If you're depending on credit cards for their low interest rate financing and all of a sudden you wind up at the end of your offer and you can't get any good offers,
00:05:01.100 | then your debt costs may go from 0% to 25% or 30%.
00:05:06.100 | And finally, you may wind up unable to pay your minimum payments without borrowing more money if you don't have cash.
00:05:12.100 | That's a problem. When you get into the cycle where your minimum payments are only being paid by cash advances on other credit cards, you're pretty surely going to go down.
00:05:23.100 | So when you're living and operating solely with credit cards, you're very vulnerable to disruptions in your situation.
00:05:31.100 | Now, unfortunately, this is how most people use credit cards.
00:05:34.100 | They take out one or two credit cards because they feel like they need the money and they do need the money.
00:05:41.100 | So they go and start borrowing money, but they don't know how to manage the system.
00:05:44.100 | And they wind up deeply in debt with penalties and fees accruing because they didn't go into it strategically.
00:05:50.100 | The best way for you to assure safety while borrowing money on credit cards is for you to have savings, preferably significant savings, to back you up as you work your way out of the need for credit card financing.
00:06:04.100 | Credit is the most useful to you if you're not entirely broke.
00:06:09.100 | So if you recognize that you run the risk of going broke, and if at that point in time you think you're going to start borrowing money on credit cards, stop and don't go totally broke before you borrow money on credit cards.
00:06:21.100 | Start borrowing the money now while you have the cash so you're not at the razor edge and vulnerable.
00:06:28.100 | Cash can help you to keep your credit score high. Let's give an example.
00:06:31.100 | Assume that you have $15,000 of cash in the bank and $15,000 of debt on a credit card.
00:06:37.100 | Assume also that you have a credit limit of $20,000.
00:06:41.100 | Because you are using 75% of your available credit, meaning $15,000 of $20,000, you will have a very high utilization score and thus a low credit score.
00:06:53.100 | And this, of course, is a bad thing.
00:06:55.100 | Now, if you take $10,000 of your available cash and you pay down your credit card debt to $5,000, your credit score will go up because your utilization ratio will go down dramatically.
00:07:09.100 | It'll go down to 25%, which will make a big difference.
00:07:13.100 | You can then go and apply for a new $15,000 credit card, which, if approved, you could use to charge $10,000 to the new card and replace the money in your savings account.
00:07:27.100 | Which would put you in the situation of having $15,000 of cash and $15,000 of debt, exactly where you were at the beginning of this scenario.
00:07:38.100 | But now, instead of a credit limit of $20,000, you now have a credit limit of $35,000, which results in a 43% utilization ratio, which is much better.
00:07:50.100 | And, of course, you can repeat as necessary until you can safely pay off the credit card debt and still have savings.
00:07:56.100 | So don't let yourself get pushed to the ragged edge where you're in a situation of having a very high amount of debt owed and no money.
00:08:05.100 | It's much better for you to have that $15,000 of cash and repeat this process as many times as you need and keep your utilization ratio than it is for you to have no cash and a lot of credit card debt.
00:08:17.100 | So cash can help you keep your credit score high, especially if you understand how the system works and you're able to use it.
00:08:26.100 | Also, cash can help you pay off debt safely.
00:08:30.100 | Assume for a moment that you have $15,000 of cash in the bank and you owe $15,000 of debt and you have a monthly minimum payment of $150 per month.
00:08:41.100 | If you pay off the debt completely, you will, of course, have no debt, but you will also have no cash.
00:08:48.100 | And this is a very unsafe position to be in.
00:08:51.100 | Being broke is very unsafe.
00:08:53.100 | And so if you in this situation had a setback, you would wind up going into credit card debt again and you would not have any cash to back you up.
00:09:02.100 | Again, unsafe.
00:09:03.100 | So if you could have the $15,000 of cash in the bank, then you could afford to pay the minimum payment of $150 a month for a total of 100 months, which, of course, would be over eight years.
00:09:16.100 | And it would actually be longer in time because the balance would go down.
00:09:20.100 | But you have eight years of safety here.
00:09:23.100 | So this gives you a very high degree of safety while you work to save enough money to pay off the debt fully.
00:09:28.100 | The lesson for you is don't ever put yourself in a situation where you don't have cash.
00:09:34.100 | You must always have cash so that you can afford to pay off your debt without putting yourself on the vulnerable edge.
00:09:41.100 | You don't want to be in a situation where one business failure or one bad month or one job loss or one unexpected pregnancy could put you on the ragged financial edge.
00:09:51.100 | Always keep cash as a cushion.
00:09:54.100 | Now, should you pay off your debt in chunks?
00:09:56.100 | If you have a very stable job or financial situation, I recommend paying extra every month so you can enjoy the financial and psychological satisfaction of watching the balance go down regularly.
00:10:09.100 | This is really, really motivating to have a chart on the refrigerator where you can see that your $15,000 balance is going down by $230 this month and $400, etc.
00:10:19.100 | That's motivating and it keeps you focused on the task and the ultimate goal, which is to have a $0 balance on your credit cards.
00:10:26.100 | But you must make sure that you have an emergency fund in place for this plan to work.
00:10:32.100 | You have to have that cash and you have to make sure that cash in your emergency fund is not going to be touched by your credit card payoff.
00:10:40.100 | Now, if you have a less stable income or less stable financial situation, then I recommend saving chunks of money and paying off your debt in chunks.
00:10:50.100 | This helps you to always maintain safety and to ensure you can always pay minimum payments on time.
00:10:56.100 | One of the most difficult financial planning scenarios to get involved in is working with people who have irregular forms of income.
00:11:04.100 | And if you have irregular forms of income, then you have to make sure that you always keep substantial savings on hand.
00:11:11.100 | And you also then simultaneously use these 0% and credit management strategies so that you can pay down your debt, but keep lots of available credit available and keep your cash.
00:11:24.100 | The ultimate goal is to be out of debt, but you better not be broke when you get out of debt.
00:11:29.100 | It should be obvious to you that cash is helpful for you and you don't want to put yourself in the situation where you have a lot of debt and no cash.
00:11:38.100 | Better to have cash and debt than a lot of debt and no cash.
00:11:43.100 | Now that you've heard that excerpt, I hope that you'll agree with me that it was beautifully well done, that it was very pithy, filled with actionable advice,
00:11:52.100 | that it helped to cement to you some concepts that will be very valuable for you to know and very valuable for you to help other people to know.
00:12:01.100 | I hope you'll agree with me that it was a tremendously good use of your time.
00:12:05.100 | And now make a tremendously wise investment and go to radicalpersonalfinance.com/creditcardcourse.
00:12:12.100 | Sign up for my course.
00:12:13.100 | Use the coupon code creditcard10 if you're doing that prior to October 15, 2018.
00:12:18.100 | Use that coupon code creditcard10 to save $10, which brings the total cost of the course down to $29.
00:12:25.100 | I'm telling you, one of the best things you could do with 29 bucks today.
00:12:30.100 | Go for it.
00:12:31.100 | Thank you very much.
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