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Help! I have $18K in credit card debt! (Soledad Says #6)

Feb 19, 2022

Dear Rosita,

Thanks for submitting a question that many people can relate to. You should be so proud of yourself for saving $12,000 in an emergency fund. I hope you are keeping it in a High-Yield Savings Account (HYSA) so you can earn more interest than what regular savings accounts provide.

Considering that you have a stable job and two dependents, you should have an emergency fund that covers between 3 to 6 months of expenses. Some people feel comfortable with less money in a savings account and some people prefer to have more in a savings account. Since you are thinking about using all of your emergency fund to pay off your credit cards, I think a 3 month emergency fund is the minimum amount that you should keep in a (HYSA).

At minimum your emergency fund should cover 3 months of your fixed expenses, which would be a total of $6,000. However, since you shared needing to use your credit cards to cover expenses in between paychecks, you should save 3 months of your net income in an emergency fund which is a total of $10,800. This means you could afford to transfer $1,200 towards the balance of one of your credit cards without creating additional financial risks.

As for your second question, I do not think you should decrease contributions to your retirement account since a general rule is that you should be investing 15% to 20% of your gross income towards retirement. Ultimately, I don't want you to wipe out your emergency fund or stop contributing to your retirement account to pay off this credit card debt and then end up with credit card again in a few months. I want you to address the bigger issue which I believe is a cash flow problem.

I want you to calculate your total fixed expenses and your total variable expenses in a month. Then subtract this total by your monthly income. I suspect once you do this calculation you will find that you have a negative cash flow which means your expenses are higher than your income.

Ideally, everyone would have a positive cash flow but stagnant salaries, inflation, health care costs, unemployment, student loan debt, etc. can really impact our ability to live below our means. We can work towards having a positive cash flow by (1) decreasing our expenses, (2) increasing our income or (3) doing a little bit of both. I personally, don't ask my clients to decrease their expenses. I would rather they focus their time and energy on increasing their income so they develop the skills to afford the lifestyle they want to live.

I would love to see you increase your income so you no longer have to use credit cards in between paychecks. If you can go from a negative cash flow to a zero cash flow, then you could stop using your credit cards until you have a zero balance. Only after you can afford to pay your credit cards in full each month should you start using credit cards again for rewards. (As long as you are paying interest, you are not really getting rewards.)

If you can go from a negative cash flow to a positive cash flow of $1,000 a month, you could pay off your credit cards in about 20 months. Then your $1,000 debt payments can turn into $1,000 investment contributions that put you on a path to retiring early. 🤩

What could you do to increase your extra cash flow by $1,000 a month? (The list below is some of the ways current clients or previous clients have increased their cash flow)

  • Rent out a room in your home
  • Walk dogs in your neighborhood for at least $15 for 30 minutes
  • Babysit for at least $20/hour
  • Tutor for at least $35/hour
  • Sell unwanted items on OfferUp, Facebook Marketplace, eBay
  • Complete freelance jobs on websites like Upwork and Fiverr
  • House sit for at least $100/night
  • Apply for a higher paying job
  • Work overtime
  • Started a business

I believe in your ability to increase your extra cash flow so you can stop relying on credit cards to get you from paycheck to paycheck. I believe in your ability to use your extra cash flow to pay off your credit card debt without eliminating your emergency fund. And I believe you can develop the habits and mindset shifts to build financial security in a way that feels enjoyable and sustainable. Do you believe this too?

If not, I recommend you attend this FREE workshop being hosted by Money Coach Charly and Life Coach Yuri on Monday, February 21, 2022 or work 1:1 with me for 6 months so we can create a financial plan that makes you debt-free and on a path to retire when you want to.

Remember financial transformations happen poco a poco. Take pride in every step you take that brings you closer to financial security. You were able to save $12,000, now I challenge you to make an additional $12,000. Sí, se puede

Todo con tiempo,


P.S. I'm hosting a FREE Roth IRA workshop on February 22, 2022 at 4:30pm PST/ 7:30pm EST. If you are available to attend live, you can register here.

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