Here's an email I recently received from a reader:
We recently paid off one of our larger credit cards and have kept a very small amount on it, usually paying it off in full before interest accrues. Last week the company (BOA) sent us a letter to do a balance transfer for 1.99% until Sept. 2010. We though great, we can put our 3 small ones on there that are over 15% and really save interest and decrease it quickly before the interest rate goes back up. Well BOA decided that since our income had decreased this year and that we had one other large card, that they would not approve the balance transfer and in fact, they would close his account to reduce their liability from us because we had a $12,000+ credit line. I begged them to just lower the limit, but they said no can do because our income has dropped too much and our debt is too large.
Our thought is this, fine close the account and hurt our credit score, we don't want to do business with you anyway. What we are thinking of doing is pulling the funds out of our mutual fund to payoff all the credit cards, for a total of $24,000, give or take a few dollars, and then not worry about any balances or interest rates. We have basically cut out our shopping for unnecessary items and only spent like $150 on Christmas gifts this year. We had already been working on paying down the accounts with no late fees, no over the limit fees, nothing. All of our bills are paid from lodging to food to credit cards to car payments and we even have money left over that we shoot towards one card in our attack of paying it off before attacking the next one.
Is using the mutual funds a good idea? We realize we'll have to pay capital gains on it, but at least all our debts but one car and the house are paid for. We can even put money back into the fund every month. What do you think?
What advice do you have for her?