Wake-Up Call

Over the past year, we've had a few major wake-up calls. I know that the vast majority has been a result of the economy spiraling downward, but it has had a very real impact on our finances. Here's an overview of what we've been hit with over the past 8 months: 

• 1st credit card slashed limit by $12,900 (no reason given)
• 2nd credit card slashed limit by $10,000 (citing high utilization, likely due to 1st card slashing available credit)
• 2nd credit card issuer closed account (citing high utilization & decreased credit score, likely due to both credit cards eliminating all available credit)
• Several cards increased interest rates & switched from fixed to variable APR
• Tried to refinance mortgage, but couldn't because we owe way more than it's worth (and we would have had to pay a significant penalty due to poor credit score, which plummeted when credit cards #1 & #2 slashed limits)
• 3rd credit card hiked minimum payments from 2% to 5%

I really hate being at the mercy of the credit card companies. We've NEVER missed a payment, or even been late, but they're still able to change the rules on us whenever they want. We have to juggle our budget around to accommodate increased monthly payments (some of them pretty significant!) whenever we get a "Change of Terms" letter in the mail, both from increased interest rates and from increased monthly minimum payments. 

But the worst part is how all their changes have impacted our credit scores, which in turn has impacted us financially. We're paying more in insurance premiums, which are partially based on credit scores. Had we refinanced, we would have had to pay an extra $3000 in up-front closing costs, due to a less than ideal credit score. 

I'm so ready to be free from credit cards. It's still a ways off, but I'm feeling motivated! 

Redoing Budgets

In order to come up with enough money to cover the extra $525/mo in increased minimum credit card payments to Chase, we sat down and reviewed our finances. We evaluated monthly expenditures, paring things back where possible. Overall, we didn't find much that we were willing to eliminate, so the majority will come from deferring money that would have gone to the emergency fund or other credit cards and instead paying it to Chase. 

We decided to cancel an insurance policy, which will save us $356/year. The policy was up for renewal anyway, so we are going to just let it lapse. Otherwise, we would have had to pay half of it by the end of next week. 

We also decided to put a 90-day hold on our NetFlix account. It's only $9.53/mo, but every little bit helps. I thought about canceling it altogether, but I love being able to stream movies at home - and it's far cheaper than going out for a date. I'm hoping that 90-days will give us enough time to get a grip on the bills, and then decide whether we want to keep it or cancel it. In the interim, we don't have to pay the monthly fee, and all the movies we've added to the queue won't be deleted! 

The biggest decision was to pay off several credit cards with smaller balances (and higher interest rates, ranging from 13-20%). In total, we have decided to pay off three credit cards with a combined total of $6204. The money to do this is going to come from a few different sources: 

• $4500, from some self employment work ($2000 of this was supposed to go to the IRS in September for estimated quarterly income taxes, but we have instead modified our withholdings for the rest of the year, so that take-home pay will be around $300/mo less than normal)
• $1150 in reimbursement checks (from a medical flex spending account, the overage on the mortgage escrow account, and for some items we purchased for someone else) that should be coming any day
• $150, for selling some older electronic items that we no longer need
• $400, from the emergency fund

Once these are paid off (by the end of July), we'll be left with only two credit cards - both with a large outstanding balance but with low fixed interest rates. Paying these smaller cards off won't have much impact on monthly payments (roughly $150/mo, which will be going right back to Chase now), but I'm hoping it'll give us extra momentum to keep going with the debt payoff.  

Bad news from Chase

Waiting in today's mail was an "Important Change in Terms" notice from Chase Bank, addressed to my husband. The contents: 

We're sending you this notice to advise you of some changes to your credit card account. These changes will take place automatically and will be effective with your August 2009 statement.

Your minimum payment due will increase from 2% to 5% of the ending balance on your monthly statement but will not be less than $30 unless your total balance is below $30. The principal factors we considered in increasing the minimum payment due include the current APRs and revolving balances associated with your account. 

There was nothing on there about being able to "opt out", and the Chase customer service representatives are saying that affected cardholders do not have the option to reject the change in terms. Either pay it off now, close the card and have the 5% minimum payment, or keep the card open and have a 5% minimum payment. 

We have several accounts with Chase, and the particular credit card affected by this change currently has a balance of $17,543 at 5.3% APR. The current minimum monthly payment on this card alone is $358 - the new monthly payment will be $877, an increase of $525 each month! 

Thanks to the emergency fund, and some serious budgeting over the past year, we should be able to absorb the increased payment and stay current on everything as well. Unfortunately, it means that some of our other credit cards, with much higher APRs, will be paid off at a significantly slower rate. We also may need to re-evaluate some planned expenditures (including school) to decide what makes the most sense.