I Added $20K To My Debt On Purpose

This is a blog about debt and my efforts to reduce it.  For the past two years I have diligently worked on reducing my debt, but this month, I purposely added over $20K of unsecured debt to my credit card on purpose all on one day.  I know that some of you are cringing now, but here is why.As I mentioned a few months ago, I have a tax liability of about $10,500 owed to New York State left over from when I close my business.  I knew that I needed to confront this head on this year, and now that I have gotten rid of one student loan, paid off two credit cards, the car, the bed, and all other debt with the exception of 3K on one credit card, two student loans and the HELOC, I thought that now was the right time to address it.  By ignoring the tax balance it was accruing interest every single day which did not help.

I also wanted to avoid the government putting tax liens on any property that they associated with me, garnishing my wages, freezing tax refunds and the like.  It was simply easier for me to address it now than before when I was literally drowning in debt.

One of my credit cards had a 0% balance transfer offer with the rate valid through the end of the year and a 4% transaction fee ($424).  I thought that it made sense to  do the balance transfer and commit to paying it off by the end of the year.  This means that I have to pay a minimum of $1,000 each month to pay this balance off before the end of the year.  I wondered if I could really do it but I realized that I can, and will.  What it will take is committing the full amount that I receive from the rental property (currently $525) plus what I would have been paying for the car ($450) and a little extra mad money.

As most of you know, I had intended on getting rid of my tenant from hell when her lease expired in April.  Now, I am questioning if I should because:

  1. A program pays 80% of her rent and the are always on time;
  2. I will lose at least 1 month worth of income between when I boot her out, fix the place up and get it rented again;
  3. Readying the apartment for another tenant will have cost me some money out of pocket;
  4. However, if I do get rid of her I can probably raise the rent to $575 netting an extra $500 over 10 months which would essentially make up for the lost revenue of the one month between getting rid of her and renting it to someone else.

These are serious things to ponder.  But then, I said that I added $20K to my debt and I’ve only told you about $11K so far.  Remember my gripe earlier this month about my student loans?  For those of you that missed it, I was bitching that I’ve diligently paid my undergraduate student loans for 10 years and most of the money that I have paid has gone to interest.  In fact, I have paid off one graduate school loan but the undergrad loan seems like it’s not budging and I have $9,400 left on that loan at a rate of 7.20%.   It’s not

girl kissing credit card

I could kiss my cards!

budging.

Another credit card was also offering me 0% interest until December.  You know what I did, don’t you?  I transferred $8K from my credit card to my bank account.  I plan on using that money to help pay off the student loan while paying off that debt by the end of the year.  It will take about $670 per month to accomplish that.

So, between these two bills, I now have to pay out $1,670 per month.  My take home pay is $2,400 per month and I have to pay other things.  Can I do it? I think that I can if I step up my advertising with this blog, work on selling things on eBay more, get a part-time job at Home Depot, and sell blood.  I will kidding about the last part.  But I basically plan on grinding it out like I did in my teens.  My 32 year old body might not make it.  Pray for me.

So, that’s how I added $20K to my credit cards in one day.  Granted, I could have obtained a personal loan or taken an additional draw from my HELOC but it would not have been at 0% interest, and I don’t want to secure my debt with the house.  I would like to thank Chase and Bank of America for being complicit in helping me add to my debt.  I have to say that the customer service person at Bank of America was awesome!  I don’t know how often people ever say that, but I was seriously happy with their service.  When I called asking them to drop my regular rate down, increase my credit limit, and give me a 0% balance transfer, I really expected them to say, “Are you smoking something.”  Alas, they didn’t.  Not only did they do all of those things for me, but the customer service person was genuinely nice.  I even gave him some advice on working on his debt load.

So, there you have it.  Call your credit card companies people!  If you are a decent customer making all of your payments on time and you don’t have a lot of unsecured debt they just might work with you.  Now pray for me and visit my sponsors in the sidebar.  🙂

This post was included in the Carnival of Personal Finance #297 hosted by Money Smart Life.

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30 thoughts on “I Added $20K To My Debt On Purpose

  • Sounds like a plan! You say there is a 4% transfer fee, that’s it yeah?

    I think I’ve seen the option of paying my property taxes with a CC, but they charge like $100 bucks or something so I just write a check.

    If it’s 0% until December or 1 year or whatever be aware that it is really 4% for the first full year interest since that is the transfer fee. Also, better check what happens if you do not pay it off before the 0% shifts.

    Good luck. I’m sure you will get it done, esp if you track it on your blog.

    Sam

    • Yep, just the 4% fee. Otherwise it seemed like a win for me. One card would calculate interest at the prevailing rate from day 1 if I don’t pay all within the time allotted. That one I will focus on first. The other will accrue interest at the prevailing rate at the time of the expiration of the current terms but they would only calculate it on the balance left over. That is secondary. I made sure I wrote down ALL of the terms.

  • You didn’t increase your total debt, you just relocated it from one place to the other (moved tax debt to credit card and moved student loan to credit card). Plus you should actually save money overall as a result. In my book that’s a good move.

    • My total debt didn’t increase. I did play a little checkers with it though. When I calculate it out, even with the 4% fee I will break even on the taxes in 3 months. The student loan I didn’t calculate out. It was a mental thing for me.

    • I really think that I can do this. I’ve taken advantage of 0% offers for lots of other things including my expensive bed (great for my back and I eliminated the chiropractor) with a 12 month term which I paid in 9. I can do this!

  • That seems like a pretty high rate for student loan debt.

    I’m not sure whether it’s private or public debt, but it seems to me that you might have been able to refinance it at a lower rate and have actually saved money over the CC since student loan interest is tax deductible and consumer interest is not.

    Either way, I’m sure you’re going to feel great at the end of the year when both are gone!

    • These re all private loans. Oh it was refinanced and locked in at that rate. It came down from 8% which was the prevailing rate waaaay back in the day. 🙂 For me, the tax deduction was much, much less than the interest that I was paying because I am in the wrong (right?) tax bracket and recent tax law changes reduced the amount of student loan interest that I can deduct. When I calculated potential savings versus tax implications it came out better with the credit deal. When the current rate expires if I have a balance it raises to 9.99%. I can renegotiate a new rate at that point and plan to. Again, I don’t plan on holding this debt the entire time…but you know what happens to plans.

  • Sandy, Best of luck with your goal. Your plan sounds quite viable. I gotta say, I’ve always thought it would be really cool to work at LOwe’s. I really enjoy “do it yourselfing and fixing stuff.”

  • It sounds scary and so far it sounds good. I really really hope you can do it. Best of luck to you! The post title did make me say “What the hell is she thinking.” 🙂

  • Smart idea Sandy, I know you can do it, just ask guidance to our Lord Jesus Christ and everything is possible. Just a matter of hard-works and sacrifices, you can do it girl!

  • Sandy,

    I applaud how you are tackling your debt problems head on, rather than throwing in the towel via BK.

    Tighten your belt, keep your eyes on your goal and you will make it. I know. I have been bankrupt, and I have been a millionaire a couple times over.
    I am financially conservative, but not afraid to take educated risks. I can see your thought process and it seems familiar :).

    Just have a contingency plan if something happens that delays your goals, because balance transfers can be ticking bombs that make the 7% student loans look like chicken feed.

    Good luck!

  • How did you get the IRS to wait for payment of back taxes? I thought they would start freezing bank accounts, etc., if not paid.

    • They do. I just didn’t have any money IN the accounts for them to freeze after they emptied one account once. 🙂 I wanted to pay everything before wage garnishments and liens were filed.

  • yeah I’m in the same situation and I’m making my wife cry every day because of it. I owe $7000 to mbna on a 0% balance transfer due oct 2012 and $10500 to rbc on 2% expiring dec 2011. I plan to transfer that debt to a LOC at 6.25% until I can pay it off maybe 2012 and then pay off the remainder from mbna by working a 2nd job 44 hours a week on top of my teaching job 30 hours a week.

    And you know what’s funny despite me working 9 am-11 pm every day including weekends, it’s her that’s upset that I’ve cut off her credit cards and plan $400 a month towards her gas to see friends and entertainment when I pay all the bills and gas and repair the cars when they break.

    I’m close to breaking myself thinking if I don’t save $800 every month my house is going to be up for foreclosure.

    I’ve done everything I can including speaking to primerica for debt consolidation but they just wanted me to pay another $100/month for life insurance

    • Sounds like you’re doing the best that you can. Have you tried peer-to-peer lending? When my 0% runs out I’m going right to either the HELOC or hopping over the Lending Club or Prosper. You can only work so much. Perhaps your wife also needs to think of a part-time job?

  • Sandy,

    I’m a little confused. You make $28,800 a year and have 80+ in debt? Holy cow! I have new respect for you. I thought you made b/w 100-150k per year with that amount of debt. But making your income and doing so well with your debt I bow down toyou.

    (2400*12)

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