The chickens are coming home to roost in January 2014 when the credit card balance transfer that’s until now served me so well goes from having a 0% interest rate to having a 12.65% interest rate — or put in nominal terms, goes from costing me $0 a year, to costing me over $1,000 a year.
Working with the advice of some commenters on yesterday’s post on the topic, I’ve decided upon paying it down and not extending that credit card debt by rolling it over into another balance transfer. One thing that could make this a lot easier is dipping deep into my emergency fund.
How much easier?
Rather than paying off the credit card debt in five months, I could pay it off in just one month. Not only that, I could pay over $300 less in interest.
However, it would leave me with an emergency fund of just around $1,000 — not even enough to cover one month’s expenses in an emergency. This is bad
On the other hand, 12.65% credit card debt is an emergency.
I can think of few emergencies that will cost me as much as 12.65% credit card debt — especially in a world where I have a credit card with an 8.25% interest rate and access to balance transfers and, in a worst-case scenario, my Roth IRA contributions (See why that’s OK here).
However, this isn’t to say that not having an emergency fund isn’t a problem. To alleviate this, I’ll live extra frugally, not just from now through December (if you get less exciting gifts from me this year, this is why) to plump up my emergency fund as best I can, but also into the new year. That monthly goal writes itself for the next few months!
Alright, how am I wrong, team?