Tuesday, July 22, 2008

Brinksmanship is not Income

I’m not proud of this, but at one time in my life, I was in brinksmanship. I was borrowing money from one credit card to pay another. I used free balance transfers (zero fee transfers) to reduce the amount of interest I was paying on the money I owed. At the time, credit card companies had not dared to break into 20% finance charges or more. But I wasn’t satisfied to be paying 18%. So I worked the system, borrowing as much as I could from one card and paying down my balance on another. Since there usually was a six month grace period during which a very low rate of interest would be charged, I simply kept track of when the six months would be up on one balance, and then paid it off with another free transfer and rode the grace period on that card for another six months. This worked only because I paid meticulous attention. If I had had a full time job that paid a decent wage, I wouldn’t have had the time to pay such attention. Or the need to.

Brinksmanship only works for a short period of time. Unless there is some hope of actually paying down the balances, it’s really just a shell game. Moving balances around doesn’t eliminate them. So brinksmanship is at best a temporary plan. While you’re playing it, you’d better have a solution in sight. In my case, more freelance work was on the horizon and then became a reality, so the inevitable crash of the tower of debt was averted. But if I had kept going without a new infusion of cash to pay down my debt, my fine edifice of slick brinksmanship would have crumbled within a few more months.

That’s what you do when you are desperate. But it should not be your only weapon. I used to listen to a radio advice guy late at night who was a font of common sense, Bruce Williams. People would call him up and say they had bought a property and it had a flat roof, and he would say, “That roof is going to leak.” They didn’t want to hear it, but he knew. I remember one time a woman called to say she and her husband had no money. She was a stay-at-home mom, and so on. Turned out, she liked to call her mother every night long distance (this was back when long distance was very expensive) and complain. Williams told her to write Mom letters, and get a nighttime job to pay down their debt. Her husband could watch the kids when he was home. You could tell that this woman did not want to hear it. But his point was, instead of bellyaching, or looking for miracles, go out and change the situation. It was good advice then, and it’s good advice now.

If you’re about to tumble over the brink, grab hold of a branch and pull yourself up. Don’t just let it happen. Brinksmanship, manipulating your debt to reduce the amount of interest you are being charged, is a tool to reduce the financial drag on you. But it won’t get you out of debt. Only additional income will do that. When I was a stay-at-home mom, I seldom met another who wasn’t trying to add to the family income with small part-time gigs. Babysitting, house cleaning, network marketing, freelance writing, racking merchandise, product demonstrating, cashiering, you name it and we did it, all at hours when it wouldn’t upset the family routine. We all knew that additional income was the solution to not having enough money to pay our bills or to pay for the extras our family needed.

So don’t make the mistake of thinking that brinksmanship in any version is going to save you. That includes borrowing from your 401k, real estate shenanigans in which you pull out equity to pay off credit cards, and debt consolidation loans. These only reduce the cost of debt, and will only delay going over the brink. If you can’t drastically reduce your regular expenses and free up money you already have, then the only way to pay down debt is to get additional income.

No comments: