Not for everyone
Let me just start this off by saying, this might not be a practical strategy for everyone. You need to figure out what works for you and what your finances can handle. Traditionally, financing debt on a credit card is frowned upon, but there are exceptions. Based on my target demographic (recently retired or managing finances on a fixed income), it’s relevant to share this information. I’m still getting used to managing our finances on a single income. It seems like good practice for the future when we will need to draw down some funds. Up until last year or so, I’ve NEVER had to do that, so I have no previous experience with it. Let’s dig into how this is going to unfold.
Some unexpected debt
For those who follow this blog, you might know that I recently had a full hip replacement. That happened in January of 2019. Financially, I didn’t plan well for this, as I should have set up an HSA account to get a tax break on some of the bills. Live and learn. That’s a post for another time. I really had no idea what the resulting balances would be from an operation like this. Long story short, my total out of pocket expense is going to be roughly $7,000, total. I had set up a monthly payment plan for this amount.
Credit card rate offer
Two months into my “hip replacement” payment plan, one of my credit cards offered 1.99% on all new charges. That was good through December of 2019. That’s a really low and reasonable rate. Heck..I can’t even get a home equity line of credit for that reasonable rate. So I’ve decided that ALL (or most) of our household purchases will be placed on this card. This also includes the remaining balance of my medical expenses.
I’m about 6 weeks into this, and the majority of our other cards balances are disappearing. The low rate card is now slowly starting to balloon. Even with a $10K balance, the monthly interest charged will only be about $17 per month. I can afford that…plus it will be offset, somewhat, by my savings account. Part of my strategy is to simply maintain a monthly minimum balance payment on this card for the next six months. This is not a “balance transfer” (which usually would end up costing more). This is a low rate on all newly charged items to this card.
Higher savings rate offers
Almost simultaneously to this inexpensive credit rate offer, Wealthfront started offering a 2.5% interest rate on their personal savings accounts. I don’t keep that much money with Wealthfront personally, and it’s not practical (for me) to pay bills or move money in and out of there frequently, but for this purpose it was the right account at the right time. Now, instead of keeping a large balance in our checking account, I’m moving a couple thousand per month to the new high interest savings account. The cash balance will grow slower than the balance on the credit card, so it won’t fully offset the interest on the card, but it will be pretty close.
Other funding sources
Finally, I’ve been doing “ok” in the market lately. I’ve been shifting to a much more conservative strategy, taking better advantage of interest bearing investments. Part of the reason I want to be more conservative is that I might want to buy a vacation property in the next year or two. In addition, since we are still a one income household, in the past year or two, I’ve sometimes been making some early withdraws from my retirement money, to keep our standard of living to what we’re used to.
This year, I took out $2K in Februay, and I’ve replaced that amount, with new investment gains. At the end of the year, should I need to supplement any “shortfall” with some cash, I’ll do it through one of my retirement accounts. My conservative investments help me have more confidence that I’ll have the money to use, if necessary. If I don’t have to use it, I won’t.
For this type of plan to work, you really need to be disciplined in watching your money, while still monitoring your spending. It takes real DISCIPLINE. It’s not a “I can charge whatever I’ve always wanted” ticket. It’s just charging what you normally would charge onto a single card and maintaining a monthly minimum payment. I happen to have my medical expenses that I’ll be carrying along with this. Overall, this just buys me more time to pay off that unforeseen expense.
You would also need high confidence that (if needed) there will be supplemental funds available. (i.e. NOT I’m expecting freelance income)
Sometimes with personal finance, you need to get creative and do what works for you. I know it’s not the best option, but it provides me with peace of mind for the next 6 months. I know I’ll enjoy the Summer a lot more knowing that I have a plan.