Savings Makeover: Cut Your Costs by Thousands with Painless Financial Tweaks

The Shoblocks were clinging to their savings account in case of an emergency. I tried to impress upon them that credit card debt IS an emergency. If your savings account is earning a measly 1 percent interest while your credit cards are charging a whopping 30 percent interest, that's just bad math. It's like barricading your front door to protect the family heirlooms, while thieves are walking out the unlocked back door with them.

On the other hand, you can instantly "make" 29 percent by using your savings to pay off your debt. I always say take that sure savings over the possible emergency. You may not even have an emergency, and if you do, that's what you can use your credit card for. In the meantime, you'll have saved thousands in interest.

Despite using my most persuasive arguments, the Shoblocks, like many people, felt really uncomfortable giving up that little nest egg. "I'm not totally sold right now," Gary said when I presented the strategy. "I would have to think about it."

But here's the thing: the Shoblocks were making only the minimum payments on their credit cards, so they were bleeding interest payments and at that rate it would take them decades to pay off those debts. I came up with a compromise. By using just two-thirds of their savings to pay off the very worst credit cards, they will save $9,679 in interest. It's hard to argue with that level of savings. And there's a bonus: by substantially paying down their credit card debt, they will almost instantly raise their credit scores. The improvement will show up as soon as the new, lower balances are reported to the credit bureaus.

Strategy #6: Roll balances to low interest credit card = $7,122

To tackle the rest of the Shoblock's credit card debt, I once again turned to the unsung heroes at the McGraw Hill Federal Credit Union. They approved the couple for a low interest balance transfer credit card. The introductory interest rate is 0 percent. Can't beat that! And the permanent interest rate thereafter is an excellent 9.9 percent interest. Two things to look for in a balance transfer card: some banks offer low introductory rates but then stick you with exorbitant balance transfer fees. This card had neither. And some banks offer low introductory rates, but they are not fixed. The 9.9 percent McGraw Hill Platinum Card rate was guaranteed.

The Shoblock's had been paying about $500 a month just to make minimum payments on all their cards. With the worst cards paid off, we figured they could afford to put $600 a month toward their remaining cards -- just $100 more. But, wow, what power that extra $100 has at these low rates. "You will get those cards paid off in a grand total of only 11 months," Danielle Lipari, Financial Services Consultant at McGraw Hill Federal Credit Union told the Shoblocks. And get this: by aggressively paying down their balance rather than making minimum payments, the Shoblocks will save another $7,122 in interest. "Sign us up," Robin exclaimed.

Strategy #7: Refinance into an Adjustable Rate Mortgage = $55,203 savings

With all the turmoil in their lives, the Shoblock's normally solid credit score took a hit, so they couldn't get approved to refinance their house at a big bank. They were stuck with a mortgage at 6.85 percent even though rates have come down substantially. But credit unions have the flexibility to go beyond peoples' mathematical scores and look at their situations.

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