591-Friday_QA-Credit_Card_Edition
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00:00:30.600 | Today on Radical Personal Finance, we do live Q&A again on the subject of credit cards and credit card debt.
00:00:37.200 | Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge,
00:00:56.000 | skills, insight, and encouragement you need to live a rich and meaningful life now,
00:01:00.000 | while building a plan for financial freedom in 10 years or less.
00:01:03.000 | My name is Joshua, I am your host, and today we do live Q&A,
00:01:06.000 | today with some students of mine in my most recent credit card course,
00:01:10.400 | How to Borrow Money Safely and Never Pay Interest Using Credit Cards.
00:01:14.000 | It's going to be technical, but I think you'll learn something if you stay put.
00:01:25.000 | All this week, and also a couple of shows last week, we have been discussing the topic of credit cards.
00:01:30.000 | And we've been doing it in probably what's a fairly unusual way in the personal finance space.
00:01:36.000 | We've been doing it in a very technical way.
00:01:38.000 | Now, I have some presuppositions, and basically I can list them very simply for you.
00:01:43.000 | One, I don't want you to be in debt. I don't want you to borrow money,
00:01:46.000 | because I want you to experience maximum freedom and minimum cost.
00:01:49.000 | Two, I acknowledge that there are times in life where it makes sense to go into debt,
00:01:53.000 | either because of past decisions, you may just already be there,
00:01:56.000 | or because of some very compelling circumstances that you've decided makes sense to go into debt.
00:02:02.000 | And I believe you're an adult. Your moral obligation is to pay the debt.
00:02:05.000 | How you actually do that, that's up to you.
00:02:07.000 | But I also believe that credit cards can be a very valuable way of actually borrowing the money.
00:02:13.000 | And they're often just beat upon by people who don't understand the system.
00:02:16.000 | Now, the concepts that we've been discussing are not entry-level concepts.
00:02:21.000 | My goal and my hope with even the course that I've launched is to take you up a level
00:02:25.000 | where you don't look at a credit card as a simplistic single source of financing,
00:02:30.000 | but rather you understand the credit card system, how it works, and how it can serve you.
00:02:36.000 | And so we talk a lot about credit card debt, and hopefully it's coming through that
00:02:40.000 | I want you to pay off your credit cards, but I want you to do it in an intelligent way
00:02:43.000 | that makes sense in your life and in your lifestyle.
00:02:47.000 | Today's Q&A call is exclusively open to those who have purchased the recent credit card course.
00:02:52.000 | Thank you for those of you who have purchased.
00:02:54.000 | If you haven't bought it yet, this is a great deal for you.
00:02:57.000 | It's really a great deal. I've tried to make the pricing and the value just such a no-brainer
00:03:01.000 | in terms of an obvious delivery on value.
00:03:04.000 | The course is about four and a half to probably four to five hours of detailed, careful instruction on credit cards.
00:03:10.000 | It also comes with me answering questions, me taking your comments and questions on things that are missing
00:03:14.000 | and maybe adding those additional modules to it.
00:03:17.000 | And then the cost is usually going to be $39. That's a retail price.
00:03:21.000 | To celebrate the initial entrance this week, all this week I've been offering a special introductory promo code.
00:03:26.000 | You should like those terms, "introductory rate," if you're involved in the credit card world.
00:03:32.000 | An introductory promo code that saves you $10, which brings your total cost down to $29.
00:03:36.000 | And I think that people often ask me, "Joshua, where should I invest my money?"
00:03:40.000 | This, in my opinion, is a no-brainer investment for you to have some education into how the credit card marketplace works.
00:03:45.000 | If you have a credit card currently, and I'm not saying if you have credit card debt,
00:03:49.000 | if you have a credit card or you think you might ever have a credit card in the future, this course is for you.
00:03:55.000 | So I hope you'll check it out. Go to radicalpersonalfinance.com/creditcardcourse.
00:03:58.000 | Sign up to buy. Make sure to use the promo code "creditcard10" until Monday, October 15.
00:04:03.000 | Now we're going to go to the phone lines here.
00:04:05.000 | And I just want to warn you that I try to explain a little bit.
00:04:10.000 | If you're new to this topic, I try to explain a little bit to you in my answers so that you can understand what's going on.
00:04:16.000 | But we're using a technical language and a technical terminology that's not entry-level stuff.
00:04:20.000 | And that's because specifically I'm speaking in this call to students who are hopefully reviewing my other content and information.
00:04:28.000 | So they're armed with what they need to know.
00:04:30.000 | But it's also because you just need to know this stuff. This is not entry-level.
00:04:34.000 | So listen to it, but listen to it.
00:04:36.000 | And if you don't understand what we're talking about, go and buy the course and then you'll understand.
00:04:40.000 | But you may not need the course if you can just gain enough from the strategies here.
00:04:44.000 | So let's go right to the phone lines.
00:04:46.000 | Mike, welcome to the show. How can I serve you today?
00:04:49.000 | I really enjoyed the course.
00:04:52.000 | I had already started doing some of the credit cards, but they killed my limit.
00:04:59.000 | They had some algorithm with one of the banks.
00:05:04.000 | So my utilization went way up, which dropped my credit score.
00:05:08.000 | So I was going to reapply for some credit cards before your class, but then I thought I'd call and ask if I should do that or try to pay these down and kind of start over or what?
00:05:22.000 | So let me just clarify what you're saying is you were you had previously had some credit cards, but the bank looked down and probably saw something in your credit reports they didn't like.
00:05:34.000 | And they lowered the credit limit available on your credit card credit cards, which, of course, then basically brought you to a maxed out status.
00:05:41.000 | And so now because that killed your utilization ratio, making it very high, your credit score dropped.
00:05:47.000 | And now you're not quite sure what to do. Is that right?
00:05:50.000 | Correct. Yes. OK, well, yeah, this is the big danger of credit cards, although credit cards have certain benefits of being safe in certain ways, depending on certain metrics.
00:06:02.000 | This is the big danger of credit cards at any time.
00:06:05.000 | Your credit card issuer can look down and they can drop your credit, you know, for any reason, by any amount.
00:06:13.000 | They have continual access to your credit report.
00:06:15.000 | So if they see, for example, that your credit balances are starting to rise, that may be concerning to them because then they see that you might be borrowing more money and that could make you a less safe borrower.
00:06:26.000 | Now, this will vary in my experience and my understanding.
00:06:30.000 | This will vary depending on what type of credit card company you're dealing with.
00:06:35.000 | So some credit cards are issued only to people with very high credit scores, and they're the ones they're most likely if they look down and see that your balances are growing.
00:06:46.000 | They're the ones who are most likely to look down and say, whoa, whoa, whoa, whoa, whoa.
00:06:49.000 | This guy is in a different situation than he was when he first got our card and they'll drop your credit limit.
00:06:54.000 | Other credit card companies are known and build their business model on working with consumers who are in lower credit score ranges.
00:07:01.000 | And those are frequently some of the most profitable consumers for them.
00:07:05.000 | So they're much more patient.
00:07:06.000 | So first, I would say this is an argument in favor of having a good balance of cards, a good mixture of cards.
00:07:13.000 | This is also a favor from different issuers that different that have different profiles.
00:07:18.000 | This is also a point in favor of making sure that whenever possible, you always have far more credit in advance than you would ever need.
00:07:28.000 | I stated in previous show and also try to emphasize in the course, if you're going to if you think that your maximum debt that you might ever need to borrow would be $10,000, you are much more well served by having, if possible, $100,000 of available credit issued to you without having it so that you have your $10,000 balance, which is only 10 percent of your $100,000 limit.
00:07:50.000 | You're much better served by having being in that situation than you are by having $10,000 of debt and $11,000 credit limit.
00:07:56.000 | So that's just a little bit of preamble for other listeners.
00:08:00.000 | But let's get down to your situation.
00:08:02.000 | Have you tried Mike applying for new credit cards with your lower credit score as it stands right now?
00:08:07.000 | I have not. I was getting ready to do that actually this week.
00:08:11.000 | OK.
00:08:13.000 | Yeah. So the only way to solve your problem is to change your utilization ratio.
00:08:19.000 | That's the only way to solve it. And there are only two ways to solve it.
00:08:21.000 | You can either increase the amount of credit available to you or you can decrease the amount of debt that you have.
00:08:28.000 | So let's first start with talking about how to increase the amount of credit available to you.
00:08:33.000 | Recognize that the credit card marketplace is huge.
00:08:37.000 | There are thousands and thousands of credit card companies who are competing for your business and who want to work with you.
00:08:46.000 | So you have a huge variety of offerings.
00:08:49.000 | There are different cards. There are different card issuing companies.
00:08:52.000 | So you have a huge variety of offerings.
00:08:55.000 | The first thing that I would start by doing is applying for credit cards.
00:08:59.000 | Now I would do that strategically and I would first look up my credit score, find out what your credit score is,
00:09:04.000 | and then I would use some of the online calculators linked in the course.
00:09:08.000 | But I would just do a search for 0% credit cards.
00:09:11.000 | You'll find sites that will, such as NerdWallet or other sites that do a good job on their search rankings,
00:09:18.000 | and they have credit card engines.
00:09:20.000 | And the way those sites work, you put in your credit score and then they have several hundred credit card companies that will work with them
00:09:28.000 | and will put their details in there.
00:09:32.000 | So if your credit score is 700, you say, "Hey, my credit score is 700."
00:09:35.000 | They will choose the cards that are issued to people with a credit score of 700.
00:09:41.000 | You need to recognize that the credit card business, they want your business basically no matter what your credit score is.
00:09:48.000 | One of the big things that people feel, which is wrong, is they feel the credit card companies only want your business if your credit score is high.
00:09:58.000 | Credit card companies do want your business if your credit score is high,
00:10:01.000 | but they also want your business if your credit score is lower because you might be a very profitable borrower for them.
00:10:08.000 | People with lower credit scores are more likely to pay interest.
00:10:12.000 | People with lower credit scores may be more likely to pay fees.
00:10:15.000 | And all of this is baked into the cake of the credit card company's analysis.
00:10:20.000 | So don't think that because you have a credit score of 700 or 600, the credit card companies don't want you.
00:10:25.000 | It's just a matter of finding out which ones do want you.
00:10:28.000 | And most companies will have different cards that are servicing different types of consumers,
00:10:33.000 | different types of people with different credit profiles.
00:10:35.000 | So I would use some of these searches. One of the better searches that I think is worth your time is using a service like Credit Karma,
00:10:42.000 | where you're actually giving them access to your credit profile.
00:10:45.000 | And then they'll look at your borrowing profile and they'll suggest for you what cards they think you could get qualified for.
00:10:54.000 | So for clarity, recognize that the way these services work, they get paid a commission based upon your signing up for their credit cards.
00:11:02.000 | So they're happy to offer you things. They're happy to use this and say, hey, your credit score is 700.
00:11:08.000 | We think that that this would serve you. And this is a better place for you to start than just by going down to local Wells Fargo branch or Bank of America branch where you don't know what they would like to offer you.
00:11:19.000 | So I would start with making applications for new credit cards.
00:11:23.000 | When making those applications, try to choose the ones that you think are likely you're likely to get approved for.
00:11:29.000 | But I would make many applications. There is basically no harm in making many applications.
00:11:36.000 | And let me show why I say basically. There is a minor component of your credit score, which is based upon recent applications for credit.
00:11:44.000 | But that the impact of that is fairly negligible. It's a couple of points.
00:11:49.000 | It seems to be a couple of points for each credit card application, fairly negligible compared to the potential benefit of getting approved.
00:11:56.000 | So what I would do is I would make a list of, you know, whatever five or 10 cards you think are best for you.
00:12:02.000 | And I would sit down and on one day I would launch through all five or 10 of those applications and do them all at once.
00:12:08.000 | And and that way you are you're putting them all on a specific date where you can track them.
00:12:16.000 | You're going to see what you get approved for and what you don't. And you may get approved for two of them or one of them or three of them.
00:12:23.000 | But even no matter the number that you get approved for, as long as it's not zero, it'll help you because it'll start to raise your available credit.
00:12:31.000 | By having it on one day, you take benefit of possibly there being some latency in the computer system between when you make an application,
00:12:39.000 | being able to make simultaneous application, sometimes approvals are instant, sometimes approvals are not.
00:12:43.000 | But more importantly, you're spreading your applications out across multiple credit reporting agencies.
00:12:48.000 | So the cards do not all use the same credit reporting agency. And so you may have to if you have six applications,
00:12:55.000 | two inquiries maybe with Experian, two inquiries maybe with Equifax and two inquiries maybe with TransUnion.
00:13:00.000 | So it's just wise to do it all at once and see what you get approved for. Now, after you get those results back,
00:13:06.000 | hopefully you're applying for cards that are appropriate to your credit score based upon the recommendations of those those filtering companies.
00:13:16.000 | And then after you get those results back, then you'll have a sense of where you are and what's available to you in terms of did you get any approvals for credit?
00:13:23.000 | Did you not get any approvals for credit? Makes sense so far? Yeah.
00:13:29.000 | Now, if you are denied for all of those, then it would make it much harder.
00:13:35.000 | And because now we have to figure out, well, now what do we do?
00:13:38.000 | In this case, I would start looking into cards that still offer you available credit, but are usually a little bit more generous.
00:13:45.000 | So things like a Home Depot credit card, things like a Target credit card, et cetera.
00:13:50.000 | Those cards will help to increase your available credit limit, and they'll often be approved a little bit more simply than than some of the other cards that are more clearly done for 0 percent financing.
00:14:02.000 | I would still have those cards to try to increase my available credit, even though they're not quite as good as a card that can be used anywhere.
00:14:10.000 | So if you were to get denied for all of your traditional credit cards, then I would move in that direction.
00:14:15.000 | Just recognize that any credit limit that can get applied to your credit report will help you to decrease utilization ratio.
00:14:22.000 | And as that utilization ratio decreases, then you'll have more opportunities to to get more credit in the future.
00:14:29.000 | I would also, when making my applications, I would try very hard to make my application as favorable as possible to the details of my situation.
00:14:42.000 | So you're going to be asked when you make a credit card application, usually they're going to pull your credit report.
00:14:48.000 | They'll ask you for your income. They'll ask you for your amount of money that you pay in rent or in a mortgage payment.
00:14:56.000 | They'll ask you for those details. What I would do is I would try to make sure that I made my income as favorable as possible within the strict constraints of truthfulness.
00:15:08.000 | And what I mean is they don't usually put in there, what is your net income versus your gross income?
00:15:13.000 | So I would use my gross income. They don't. They often put in their household income.
00:15:17.000 | So I would make sure to use my household income and count whatever income sources are there.
00:15:21.000 | If I were in a period of time where I were deep in credit card debt, I would make sure that I was working as much overtime as possible.
00:15:27.000 | And I would use my current month's income and I would extrapolate that over an annual basis and report that as my income.
00:15:34.000 | Similar thing with my rent or my mortgage.
00:15:37.000 | I would try to get those rental payments or that mortgage payment as low as possible to help that part of the credit approval process.
00:15:43.000 | So things like bringing in a roommate or bringing in a temporary boarder.
00:15:47.000 | That's good because it frees up cash flow to help you pay down your credit card debt.
00:15:51.000 | It's also good because it changes the ratio of your expenses.
00:15:54.000 | And so you want to make sure that within the constraints of truthfulness that you report the numbers that are most favorable to you on a credit card application.
00:16:03.000 | OK. Agreed so far? Yeah. Yeah.
00:16:07.000 | Now, let's say that you're in a worst case scenario and you have you're denied for every credit application that you make and you just simply cannot raise the utilization ratio at all.
00:16:18.000 | What do you do? Well, in that situation, the only thing that the only other way for you to affect that utilization ratio is to lower the debt that you currently have.
00:16:29.000 | And the only way to do that is is either to pay it off using funds from savings or from cash flow or to pay it off using funds from a debt that's not going to be otherwise reported to the credit reporting agency.
00:16:44.000 | So about how much credit card debt do you have and what are your current limits?
00:16:49.000 | It's about 15,000 and it's 81 percent.
00:16:53.000 | I didn't add up my total credit according to credit karma. It was 81 percent usage. So that makes it. OK.
00:16:59.000 | 20 something. Do you have any savings or any investments available to you that you could draw money from?
00:17:05.000 | Yes, I could pay those off all right now with savings.
00:17:11.000 | OK. I just didn't quite want to do that in case it didn't drop the utilization far enough with Christmas and other things coming up.
00:17:19.000 | Not have any cash would be the best. That's the of course, of course.
00:17:23.000 | So not having cash, as you know, being a student, of course, I emphasize that.
00:17:28.000 | And this was one of the one of the small pieces of this component that I released into the podcast feed for all the listeners.
00:17:34.000 | But one of the worst places to be when you're in credit card debt is broke.
00:17:38.000 | And by that, I mean you don't want to have credit card debt and no cash.
00:17:41.000 | You want to make sure you take very good care of your cash because the best place to be in is to have cash.
00:17:47.000 | And so if you could if you could pay those debts off, then I would start by making applications or credit karma is useful because they'll show you what the next level is in terms of your credit utilization ratio.
00:18:00.000 | So let's say that they said you could go from 81 percent down to 67 percent.
00:18:05.000 | And we think that would raise your score by 37 points, whatever the actual numbers are in your situation.
00:18:11.000 | In your case, what I would do is I would go ahead and pay down that for those credit card balances sufficiently to get me down to the next utilization ratio.
00:18:21.000 | If you're denied credit by by by first making applications, then you'll have to pay it down, pay it down to the next utilization ratio and then make new applications for new credit cards.
00:18:32.000 | And as you reach that next lower utilization ratio, then you will be approved for more credit cards.
00:18:38.000 | And so you make as many applications as you can. And your goal is to get from go from twenty thousand dollars of available credit to forty five thousand dollars of available credit.
00:18:47.000 | And you work on this little by little. So you make payments, lower them down.
00:18:52.000 | And then if you get approved for more credit, then if you need to put the money back in your savings, then you consider going ahead and using those new cards as financing until you can save up enough money to pay them off completely.
00:19:06.000 | So I would I would work. I would pay down the money. I would pay down the debt.
00:19:11.000 | You get the utilization ratio down and then if you need and apply for new cards and then if you need to borrow again on the cards, then use those newer cards as your sources of funds while you're replacing money and savings.
00:19:21.000 | And it's very simple. You apply for a new zero percent interest rate credit card. They approve you for you pay five thousand dollars down on your debt.
00:19:28.000 | Do you take five thousand from savings? You go from 15 to 10 and then that drops your savings to an uncomfortably low level, but it drops your utilization ratio from 80 percent to 50 percent.
00:19:39.000 | That's a huge difference in credit card utilization. You apply for a new card and one of your cards issued with five thousand dollar zero percent introductory purchase period on purchases.
00:19:51.000 | So then you go and use that zero percent introductory purchase rate card for all of your household expenses for the next few months.
00:19:58.000 | You divert all of your income back into your savings to build that back up until you get that card full and then you keep on and then you keep on moving.
00:20:10.000 | And what you've done essentially is a few months from now, you put yourself in a situation where you now have twenty five thousand dollars of available credit.
00:20:19.000 | You have the same fifteen thousand dollars of debt and you have the fifteen thousand dollars back restored into your savings.
00:20:26.000 | But your credit score is higher. Your utilization ratio is lower because of that move that you've made.
00:20:31.000 | That does make sense. Yes. So you would. But first you would go ahead and try to apply for the credits before you paid it down.
00:20:41.000 | Right. And let me clarify. Why don't you want to today if you have the cash, why don't you want to just simply take all of them, some of the money that you have in savings and pay off your credit cards?
00:20:51.000 | Well, because then I would have I would have no money essentially because I still could knock my balances down again for some reason.
00:21:00.000 | And then I'd be stuck with no no cushion. Correct. Correct. Now, if you did that, how long do you think it would if you did actually do that and you had no money?
00:21:10.000 | How long do you think it would take you to be able to save up the fifteen thousand you have in savings again?
00:21:15.000 | Probably around a year. OK, so this is a medium term goal and a year is a doable thing.
00:21:25.000 | It's a medium term goal. It's not a long term. It's not a short term. A short term thing.
00:21:29.000 | Now, I agree with you. I wouldn't want you to do that. But let me let me tell you why I would consider it as one of your options.
00:21:36.000 | The reason your credit card companies lowered your limits is because they don't know how much money you have in savings.
00:21:44.000 | And when they look down and they see that you have an 80 percent utilization ratio, they think you're going into financial distress.
00:21:51.000 | And this makes sense. If you were advising a friend of yours and you're watching a friend of yours and the only thing you have is access to his credit report.
00:21:59.000 | But you see that month by month by month, his credit card debt is going up, up, up, up, up.
00:22:04.000 | Then there's a good chance that you think that he's in distress and there's a good chance that, you know, hey, things might not turn out so well.
00:22:12.000 | He might be using credit cards to pay credit card payments and his debt is just going up, up, up, up, up.
00:22:17.000 | That's a really dangerous thing. So you might be less inclined to pay to lend him more money.
00:22:23.000 | And the credit card companies are simply making that simple calculation. Now, if, on the other hand, you look over and you see that your friend has paid off 50 percent of his debt in the last few months and those balances are decreasing.
00:22:36.000 | You're not going to pull credit limits from him. You're going to be very you're going to be very comfortable with his borrowing the money because you see that he's moving in the right direction.
00:22:45.000 | And so that's what credit card companies are doing. They're just looking at your credit report.
00:22:49.000 | And as that that particular card that lowered their limit, they're looking down and they're saying, wait a second, all the signs are here that this guy's going into financial distress.
00:22:57.000 | We don't want to be exposed to him. Other cards may have said, we don't mind being exposed to him, but we don't want to be exposed to him.
00:23:03.000 | So as your debt goes down, they're not going to lower your limits again.
00:23:07.000 | If you're at twenty thousand dollars of the limit and you paid off seven thousand five hundred dollars, they're not going to lower your limits again.
00:23:14.000 | So I think your best path is to do something like I said, drop use five or seven thousand dollars of debt, pay down the card, make applications for new ones as your utilization ratio goes down.
00:23:27.000 | And then you have those cards as backup. And depending on the circumstance in which you're worried about having cash.
00:23:35.000 | Remember that credit cards can be a useful form of emergency funds. So, you know, cash is always the best.
00:23:44.000 | But credit cards also give you buying power. So if you pay down the money in credit cards, it's not like it's gone.
00:23:50.000 | It's not like you can't go and take those cards and use them again. So I think the best is to be conservative.
00:23:55.000 | But I would use the cash to pay them down with a goal of a year to a year and a half from now being entirely debt free.
00:24:02.000 | OK. That sounds great. Good. Well, any other questions, anything else unclear to you?
00:24:10.000 | No. One thing I did really learn was that you don't get a negative hit if they decline you.
00:24:17.000 | I did not know that until your course. Yeah, that's very useful.
00:24:22.000 | That's why you can not be afraid to make ten, put ten applications out there and exactly.
00:24:29.000 | Yeah. The change to your credit is not based upon approval or denial of credit.
00:24:35.000 | It's based upon inquiries. And depending on the person, depending on how the score is parsed for different people,
00:24:41.000 | if you're making mortgage inquiries and those inquiries will probably be brought into one one particular inquiry and they'll be collapsed down.
00:24:47.000 | Credit card inquiries, I'm pretty sure work differently. But denials or approvals are no big deal.
00:24:52.000 | And the credit industry wants you to apply for new credit. They want you to do that.
00:24:59.000 | And so you can understand that the entire focus. Remember, they're marketing to you.
00:25:03.000 | They're trying to get you to take their money. That's the entire business plan.
00:25:08.000 | So they want you to do that. So they don't they don't they don't change your score based upon denials or approvals.
00:25:15.000 | They only change your score based on inquiries. And even that small, that impact is very small.
00:25:20.000 | And that small impact doesn't ever factor into the score. Once 12 months have passed.
00:25:25.000 | So you there's no reason not to just make consistent new applications.
00:25:30.000 | As many applications as you think are reasonable to try to improve your situation.
00:25:35.000 | There's no downside to it. That's what I should have kept doing.
00:25:38.000 | And I kind of just stopped because I had what I thought I needed.
00:25:41.000 | And then you should just kept applying for some new cards every 90 days or 91 days, like you said.
00:25:48.000 | Yep. Yep. That's where and I hope that you will take into the future and other students will take.
00:25:54.000 | One of the big reasons I created this course is to help you understand how it works.
00:25:59.000 | So if you're going to keep lines of credit open to yourself and if in the future you would ever use them,
00:26:05.000 | whether for convenience to finance something that you needed to as emergency,
00:26:08.000 | whatever your use of them would be, that you build that infrastructure far in advance.
00:26:15.000 | And from now going forward, if you think that, hey, I wound up in fifteen thousand dollars of credit card debt,
00:26:21.000 | I could wind up there again. Your goal is three or four years from now to not only have lots of savings in the bank,
00:26:27.000 | so that you would never have to use credit cards if you didn't choose to,
00:26:30.000 | but also to have your credit limits at 50, 60, 100 thousand dollars, not at three thousand or twenty five thousand.
00:26:37.000 | Right. Well, thank you very much. Right. Great. Thank you for calling in.
00:26:44.000 | Thank you. And in South Carolina, welcome to the show. How can I serve you today, sir?
00:26:48.000 | Hey, Joshua, good to talk to you. I had a quick question.
00:26:53.000 | I was thinking about using one of our credit cards to pay down our mortgage so we can get rid of our insurance.
00:27:02.000 | Right. And just a little bit of the background, we owe about one hundred and I think about one hundred and twenty eight thousand.
00:27:16.000 | And to be an 80 percent longer value ratio, we need to be about five thousand less.
00:27:23.000 | And I currently about one hundred and twenty six dollars a month. It's not very much.
00:27:27.000 | More so just the principle of paying it just kind of bothers me.
00:27:32.000 | I'm wondering about your thoughts on that. Do you have the available credit on credit cards that you could you could move that you could you could put five thousand dollars of debt onto them without too much of a problem?
00:27:45.000 | Yeah, we do. We currently have about fifty six thousand of available credit for credit cards.
00:27:49.000 | We're carrying a balance of about eleven thousand dollars. Previously, we had probably about eighty or ninety thousand dollars of credit available.
00:27:56.000 | But I closed some cards down just to kind of simplify it, which in hindsight may not have been a good idea.
00:28:02.000 | But we're kind of like our top two goals right now are getting out of debt and increasing our cash flow.
00:28:10.000 | So that's paying the heat lockdown kind of goes against those two things.
00:28:14.000 | But. Still kind of considering it, if we don't if we don't use the credit cards to pay down the heat, we'll be there in probably about twelve months anyway.
00:28:23.000 | So I guess I'm looking at saving about fifteen hundred dollars with the PMI.
00:28:30.000 | If we did go that route of using the credit card to pay down the mortgage.
00:28:35.000 | What are the interest rates on your current eleven thousand dollars of credit card debt?
00:28:40.000 | Zero percent. So probably about six more.
00:28:44.000 | Great, great. Well, I think in your profile here, I think this would be very well worth considering, and it's important to keep it in context, as you stated.
00:28:56.000 | One hundred and twenty six dollars a month is not in the grand scheme of things, probably a huge number.
00:29:02.000 | But if it would save you in total fifteen hundred dollars, I mean, I cash fifteen hundred dollar checks when people send them to me and that's significant.
00:29:12.000 | I think that's worth doing. And if you can do it with a minimum amount of risk and with controlled expenses and without too much time, I think it's well worth considering saving fifteen hundred dollars.
00:29:24.000 | So the first thing I would do is, one, calculate how long it would be until you actually qualify for this under your current plan.
00:29:35.000 | You qualify for that 80 percent loan to value ratio under your current plan and consider things like simply, do I qualify now?
00:29:42.000 | Some people find that if they ordered the new appraisal now because their property values may have increased or perhaps they've improved the value of the property in some way, they may already be there.
00:29:52.000 | And so if you were already there, maybe this is unnecessary. So think that through carefully and understand those costs.
00:29:58.000 | Inquire with your bank the process of getting that PMI removed in terms of how that works typically with them.
00:30:05.000 | Are they going to order an appraisal? Is this just based upon the numbers of the time of purchase or financing?
00:30:10.000 | And understand how that process works to see if this is necessary. If you find this necessary, I don't see any reason why this why you couldn't easily do this,
00:30:20.000 | because if you only have eleven thousand dollars of credit card debt as compared to fifty six thousand dollars of available balance, that is still a very healthy utilization ratio.
00:30:30.000 | You previously had more credit available to you, which means that it should be fairly easy for you to get more credit going forward in the future.
00:30:38.000 | And you already are curing balances under the zero percent terms. So you're a little bit familiar with this game.
00:30:44.000 | And if you have six more months, that gives you plenty of time to get new cards in place and get new financing to roll that balance over again.
00:30:51.000 | So I think that that would be worth pursuing as a way of saving money.
00:30:57.000 | And the way I don't see any I don't see any risk to doing it.
00:31:02.000 | The only risk would be. Well, excuse me. I don't see any risk.
00:31:06.000 | The major risk would be if you can't keep the credit card debt refinanced at low rates, then you may have swapped in a low rate mortgage for a higher rate credit card.
00:31:21.000 | That's the major reason. But beyond that, I've been there before. That's one reason.
00:31:25.000 | That's one reason I'm a little hesitant to do it because we've been there before.
00:31:28.000 | We used to live up to about fifty six thousand dollars in credit card debt, but probably about a 66 percent utilization ratio.
00:31:35.000 | And we kind of point where I wasn't able to move the money around anymore.
00:31:39.000 | Our situation is a lot different now than it was then.
00:31:42.000 | We're making a lot more money. So I don't foresee getting back there again.
00:31:47.000 | But it makes me a little hesitant to run the credit card balance up, even though really I'm just moving money around the balance sheet.
00:31:53.000 | I mean, that's all we're doing. Right. Right.
00:31:58.000 | If you get up to. The point about the appraisal, that's another kind of consensus point.
00:32:04.000 | So I did order a new appraisal through my mortgage company.
00:32:08.000 | I had a real estate agent kind of, you know, very simply by your house and we should have easily come in at that 80 percent value.
00:32:16.000 | But for whatever reason, the mortgage company said that it didn't. I don't agree with that.
00:32:21.000 | We have a lot of recourse there. Maybe you could do this.
00:32:27.000 | Maybe if you started by since you have some concerns about your ability to roll that debt and you definitely you get a 50 or 60 percent utilization ratio,
00:32:37.000 | you're going to start to have trouble refinancing that debt and it's going to start to be tuck and go.
00:32:42.000 | But at the at the percentages that you are, eleven thousand dollars a day, fifty six thousand dollars of credit,
00:32:48.000 | then you're not going to have trouble at that rate refinancing debt.
00:32:53.000 | You're not going to have trouble with sixteen thousand dollars of debt, especially if you can do this by applying for new cards to go ahead by applying for new cards so that your available credit is going up along with your debt.
00:33:06.000 | So but since you've had that concern before, maybe if you took a moderate approach and you went ahead and thought about refinancing the eleven thousand you currently have or knowing that you need to refinance this because you only have six months remaining on that.
00:33:23.000 | And then once you see what happens with that, then go ahead and move the mortgage money over.
00:33:28.000 | I think the simplest way to do this in your situation, do you and your family, do you have good cash flow at this point in time and turn from your incomes?
00:33:36.000 | Yeah, we have pretty good cash flow. We're going to kind of lean on savings because we're kind of in the progressive debt pay off mode, but we have pretty good cash flow.
00:33:44.000 | We have about a thousand dollars extra.
00:33:47.000 | Great. So try for some zero percent purchase credit cards.
00:33:52.000 | Usually those will give you the lowest entry cost. If you can qualify for them, they'll give you the lowest entry cost because they'll give you zero percent on purchases and there's no balance transfer fees.
00:34:03.000 | So that's usually their lower cost than balance transfer cards. Try for some zero percent cards and try for them for as long as the introductory rate you can get.
00:34:12.000 | You can often get more compelling zero percent introductory period for purchase cards than you can for balance transfer cards.
00:34:21.000 | So you can get a zero percent card often for 18 months. Well, that gives you tremendous flexibility.
00:34:28.000 | And so what I would do is let's say you apply for one of those cards and you get a five or ten thousand dollar credit limit or a couple of them.
00:34:35.000 | I would match those cards out with all of your household purchases and I would set aside all of the cash into savings.
00:34:43.000 | But the goal of being by the time this six month deadline appears, but it's eleven thousand dollars of debt.
00:34:51.000 | You have all of the you have all of the money sitting and saving that you can just stroke a check and completely pay off those balances before that six month deadline appears.
00:35:02.000 | And then depending on how much you can get approved for and how much cash you can set aside, then I would use the remainder of that cash.
00:35:11.000 | I would go ahead and use those those purchase cards to refinance the mortgage and then go ahead and just write the five thousand dollar check to the mortgage company to to lower the balance down.
00:35:21.000 | I feel like that was a little bit confusing in the way I described it.
00:35:24.000 | No, I mean, it makes sense. I'm going to say, you know, I made sense.
00:35:27.000 | I thought you were going to say use the zero percent introductory cards just to pay the mortgage balance down.
00:35:31.000 | But that makes sense to use those to kind of cash flow our monthly expenses while we save up our cash.
00:35:37.000 | That makes sense. Right. That's the easiest way usually to use credit cards for financing, because although, yes, it is technically possible sometimes to do something like pay a mortgage payment on a credit card using something like plastic or some similar service,
00:35:56.000 | or although technically it is possible to do a cash advance, those terms are usually not as easy to get in the credit card marketplace.
00:36:03.000 | In the past, when I when I was playing this game myself in the past, I was able to get zero percent balance transfer cards with a zero percent interest rate and a zero percent balance transfer fee.
00:36:15.000 | But those are not common. Usually there's a three or five percent fee.
00:36:20.000 | So the cheapest way to do it, usually the most common ones to get are the introductory purchases.
00:36:26.000 | So if you use those and you put all of your normal family expenses, your groceries, gas bills, stuff that you buy, you put those expenses for a normal family onto a card.
00:36:39.000 | Usually that's two to three thousand dollars a month. It's fairly easy to get onto a card before you go into the world of transfers and cash advances.
00:36:48.000 | Well, two to three thousand dollars a month puts you six months from now at twelve to fifteen thousand dollars of refinance debt.
00:36:55.000 | That lines up really well with your timeline of the six months that you have to pay these down or refinance them before they they start kicking in heavy interest payments.
00:37:05.000 | And it also lines up with the timeline needed to make good decisions here about your your specific idea of refinancing the mortgage onto a credit card to save on the PMI.
00:37:15.000 | So I think that would be the best move.
00:37:18.000 | Yeah, we're currently doing that with a separate credit card that we just we actually do pay it off every month.
00:37:23.000 | We spend it all spend on it for the month and then pay it off at the end of the month.
00:37:27.000 | And the credit card is running the balance. So we do get those checks in the mail where you could stroke a check at the zero percent interest for a year.
00:37:33.000 | And so I was just thinking about sending one of those checks into the mortgage company.
00:37:38.000 | You could, but what's the balance? What's the fee on those at three percent?
00:37:42.000 | I don't know. I think it's zero percent for until next October.
00:37:48.000 | I think I don't think there's a fee for using the actual check. I'll have to look at it.
00:37:54.000 | Look out carefully. They do exist. You can get them.
00:37:57.000 | But usually there is a zero percent rate for a certain period of time, such as 12 months.
00:38:03.000 | And there's also then a balance transfer fee. And it's usually three percent.
00:38:08.000 | Now, if you were to write then a check for five thousand dollars and you were to charge to that a three percent fee, that's one hundred and fifty dollars.
00:38:15.000 | It's still better to do that if that can save you fifteen hundred dollars. But you need to know that's one hundred and fifty dollars.
00:38:21.000 | So I would be open to doing that. But I would first start with trying to say, can I can I get a new card?
00:38:28.000 | And I want to go back and encourage if you ever have the option, it's always better to apply for a new card or a new line of credit somewhere,
00:38:35.000 | because that that does two things simultaneously. It gives you access to more credit and it raises your total credit available.
00:38:41.000 | You'll still get and you'll still have these checks that you have for your current card.
00:38:45.000 | But if you use this, this will go into your fifty six thousand dollars available credit.
00:38:49.000 | But if you apply for a card, they give you a five thousand dollar limit.
00:38:52.000 | Now your available credit will increase, which will keep your utilization ratio low with your eventual goal of getting to zero dollars owed on the credit cards.
00:39:01.000 | Yeah, I think that makes good sense.
00:39:05.000 | Good. Keep your options open to you. Make sure that those deadlines don't sneak up on you.
00:39:09.000 | And then finally, I just say the biggest risk with the plan that I described, such as using a card for purchases,
00:39:17.000 | the biggest risk is always overspending. It's so easy to overspend with a credit card because it's hard to track.
00:39:22.000 | So make sure that you're diligent in some way of tracking the amount of money that you're spending,
00:39:27.000 | because if you're working hard on paying off debt, which awesome, I love it.
00:39:32.000 | If you're working hard on paying off debt and you're used to keeping the budget very tight, it can you can lose that.
00:39:38.000 | And if you lose that tightness with the expenditures, then all of a sudden now you were on track to get out of that 12 months from now.
00:39:45.000 | But if you start spending more money, maybe you're not on track to get out of that until 24 months.
00:39:49.000 | And in that case, the fifteen hundred dollars in savings on the PMI was less impactful than the fact that you just spent more money at Costco.
00:39:58.000 | So make sure you have a way of tracking those actual expenditures and don't fall prey to the risk of, hey, it's on a credit card.
00:40:05.000 | So we're going to spend more money. It's still worth it to keep expenses low.
00:40:09.000 | They were pretty good about tracking. We just did like a running checkbook and a spreadsheet for our weekly expenses.
00:40:13.000 | We're pretty good about tracking that.
00:40:16.000 | Good. As long as you got that system, then I think it's a plan worth investigating.
00:40:22.000 | But I would just last caution. Be careful on the 11000 since you've got six months now to refinance that.
00:40:28.000 | Probably you'll feel better getting that refinancing squared away in the next couple of months.
00:40:34.000 | At least knowing what your plan is before going to the mortgage.
00:40:38.000 | And I would do that because you've got 18 months of breathing room.
00:40:41.000 | That'll make you feel a lot better about about moving the mortgage that also over versus only having six months of breathing room.
00:40:48.000 | Perfect. Yeah, that was great. I will definitely do that.
00:40:52.000 | Thanks, Brandon. I have one final question from a student of mine.
00:40:56.000 | Craig writes in and says, hi, Joshua, I won't be able to call in today for the Q&A, but one question I have is about credit freezes and how this would influence your strategy.
00:41:04.000 | Since you do not know which credit reporting agencies each bank or credit company uses, do you unfreeze your accounts from all the agencies at the time of application for new credit cards?
00:41:14.000 | Is there anything else we should know about crediting or credit or security freezes within the context of this course?
00:41:19.000 | My apologies if this is answered in a previous or forthcoming lesson. I haven't been able to get through the entire course yet. Thanks.
00:41:25.000 | Well, Craig, it's a good question. I do address it at the very end of the course, but I'll go ahead and give an answer now in public.
00:41:32.000 | I am an unabashed fan of credit freezes. It's my opinion that credit freezes are the simplest and most effective form of identity theft protection that you can have in place and that all people should have credit freezes in place and in force, except the people who are playing this credit card game.
00:41:56.000 | So if you think about somebody who's not playing this credit card game that we're talking about, if you think about the way that their borrowing habits might go, let's just call them a normal person, somebody who reads a money magazine type of approach, then it's very easy for this type of person to keep a credit freeze on their file.
00:42:14.000 | After all, their access to credit and to the use of credit will be occasional.
00:42:20.000 | They might, when applying for a mortgage, they might need to unfreeze their credit. Well, that's simple. You just find out which mortgage company you need to unfreeze your credit with. You unfreeze your credit for the appropriate period of time. You can do that automatically through the phone tree system. It's very simple.
00:42:34.000 | Then if you're going to go and buy a car and you're going to apply for auto financing, then you can go ahead and unfreeze your credit for that. It's simple.
00:42:41.000 | And perhaps some people from time to time might apply for a new credit card, but they usually just have one credit card or a couple of credit cards that they use consistently for a long period of time.
00:42:51.000 | In this case, it's no problem to unfreeze your credit when that situation occurs, when you need to apply for it, but not when you're playing this credit card game.
00:43:01.000 | What I would recommend is while you are playing this credit card game, where you are consistently applying for new cards, consistently taking out new lines of credit so that you can refinance your debt, so that you can surf your balances from one place to another.
00:43:15.000 | I think it's simply too unwieldy to keep a credit freeze in force.
00:43:21.000 | Now, could you do it? Yes. I think it's too unwieldy though, because you might sit down and make applications for three, four, five, six credit cards all at one sitting.
00:43:31.000 | That wouldn't be uncommon. And those credit cards, you wouldn't know which credit agencies you have, which credit agencies they're using.
00:43:39.000 | So could you, if you're every 90 days sitting down and applying for new credit cards, could you at that point in time unfreeze all three credit agencies? Yes.
00:43:48.000 | But that's three phone calls. And how long are you going to unfreeze it for? For 30 days? And then 60 days later, you're going to unfreeze it again?
00:43:55.000 | I think the risk of identity theft is in this situation relatively low as compared to the benefit of surfing credit cards around.
00:44:04.000 | So here is my answer. If I were playing this game, I would not have a credit freeze on my credit file while I'm in credit card debt and while I'm playing this game.
00:44:14.000 | Because I'm going to be consistently applying for new forms of credit. I'm going to be consistently applying for things when they become available.
00:44:20.000 | Yes, I'm going to do it intentionally and strategically. But if I come across a great offer, I'm going to take it. I'm going to apply for it.
00:44:25.000 | I'm going to get it. And I would be applying for so many new offers to raise my available credit, to lower my cost, to refinance my debt that I just wouldn't want the hassle of dealing with a credit freeze.
00:44:36.000 | Once I'm entirely out of credit card debt and I've paid off all my debt and I'm not playing this game anymore, I would at that time reestablish the credit freeze. That's my opinion.
00:44:47.000 | What's the risk of that? Well, you have the risk of additional risk of identity theft. But I think the risk is minimized here because you're actually watching your credit profile very carefully.
00:44:57.000 | You're carefully observing the lines of credit that have been issued to you. You're carefully paying attention to all the details. Most people don't do that.
00:45:04.000 | So I think the risk is minimized here. And if somebody steals your identity as making applications, maybe at that point in time, you would be able to identify it and quickly correct it.
00:45:13.000 | Now, you may have a different opinion. I respect that opinion. I don't think this is right or wrong. But in my opinion, the hassle of maintaining a credit freeze while you are playing this credit card game, it's just not worth it.
00:45:27.000 | So I would keep it my credit unfrozen, finish the game out, get to a balance of zero, keep my credit card portfolio just how I wanted it, and then reinstitute the credit freeze.
00:45:39.000 | As I close out the Q&A show, I hope that you learned something from those calls. I hope that you were benefited in your own situation.
00:45:45.000 | Looking at your own situation can be hard because you may not know all of the different things you can do. So hopefully by listening to these caller situations, you have some more ideas that you can apply to your own life.
00:45:56.000 | Just remember this. Your goal is to get out of debt. Your goal is to be completely debt free. That's the goal. And you want to accomplish that goal as intensely and as quickly as possible.
00:46:09.000 | But you have to also recognize that life has to continue while you're getting out of debt. And that means sometimes you'll get out of debt slower and sometimes you'll get out of debt faster.
00:46:20.000 | And you use different financing terms along the way. But if you can lower your expenses, you should. The three things that you can do with money, increase income.
00:46:30.000 | You notice in my discussions with the first caller, we talked about increasing income. While you're getting out of debt, you should consider working extra jobs, taking as much overtime as you can get, starting up a side business, renting out your house to somebody who wants to rent a room for a few months, running out your yard for somebody who needs a place to park their boat.
00:46:49.000 | You could consider your assets that you have and figure out how to increase income as much as possible. Because that income will help you to have more money available for savings, more money for credit card debt payment.
00:46:59.000 | Number two is you should lower expenses. And it's silly for you to think that lowering expenses on your groceries is a good thing, but lowering expenses on your interest is not. Lower expenses is lower expenses.
00:47:13.000 | So if that means that possibly you can remove your PMI payments and that helps you to remove $1,500 of your expenses over the next year, that may be two months faster that you can get out of debt and be totally debt free.
00:47:28.000 | That may also allow you to free up cash flow to refinance a credit card that was hard to refinance because you didn't have that extra $150 a month and you can lower your payments faster by more aggressively attacking that debt.
00:47:42.000 | $1,500 of savings is $1,500 of savings is $1,500 of savings. It doesn't matter where the savings comes from.
00:47:50.000 | So it's good to save on money at the grocery store. It's good to save on money on the car that you drive. And it's good to save on money on your credit card interest. And it's good to save on money on your PMI.
00:48:00.000 | Recognize that. And then investing wisely. How do you invest wisely in this space? Well, you can invest your time productively.
00:48:08.000 | One of the challenges that people who earn salaries often face is what do I do with my time? I don't have the ability to go to work more and earn more money with my time. I don't have a great side business opportunity.
00:48:17.000 | So what can I do? Well, you can invest your time into figuring out how to save money. It takes time to make applications to many credit card companies.
00:48:24.000 | It takes time to track these things and to set up the appropriate systems behind them so you can not get screwed by the system. But that's a good use of your time.
00:48:32.000 | If you have it, it's a good use of your time to work the process through with your mortgage company and figure out how to get rid of your PMI and make sure you understand that.
00:48:42.000 | It's a good use of your time to buy my course and go through it and understand how the system works so that you can save money in the future.
00:48:49.000 | These are good uses of your time and they're good uses of your money. If you actually look at somebody who's in credit card debt and let's say they're paying interest and you look at the value and the return on investment,
00:49:00.000 | if they can take their credit card financing from 18 percent to 5 percent net overall on their overall portfolio of debt, that's a big savings for many people.
00:49:09.000 | Probably more return than you're getting in some other places of life.
00:49:14.000 | So I hope these concepts will help you and thank you for listening. If you haven't bought it yet, go to radicalpersonalfinance.com/creditcardcourse, sign up and buy the course,
00:49:22.000 | How to Borrow Money Safely and Never Pay Interest Using Credit Cards. Use promo code creditcard10, spelled out T-E-N, creditcard10 before Monday, October 15, and you'll save 10 bucks.
00:49:34.000 | Hey, that's a good return on interest, right? Return on your money? Thank you so much.
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