Several years ago, I put around $35,000 on my one and only credit card thanks to a home remodeling project and a new watch purchase. My “reward” was a 1% rebate towards my home mortgage, which is not bad considering $350 paid to principal is thousands in interest savings over the life of the loan.
$35,000 is the most I’ve ever put on a credit card in one month and it felt kind of odd. But, I really wanted to create a new bathroom from a closet to add functionality and value to my house. There’s an amazing amount of stuff you need to buy when building a new bathroom: wall tiles, toilet, limestone, shower heads, copper pipes, sinks, mirrors, lights, deep soaking jacuzzi jet tub, lights, light fixtures, paint, doors, crystal knobs, skylight, ventilator and so forth. $20,000 in materials adds up quick!
The watch was a Stainless Steel Daytona that cost $9,600, which I promptly sold for a profit three weeks later because a friend begged me to sell it to him! For those who know watches, the Stainless Steel Daytona is one of the most coveted watches on the market, which can’t be bought in any store. You need a jeweler, connections, or a history of purchases to gain access to this particular watch. It’s a big waste of money, but one of my weaknesses that I so conveniently categorize as a hobby to justify.
Add on all the other normal purchases of food, insurance, membership dues and transportation costs, racking up $35,000 in credit card debt in a month is just as easy done as said!
When the bill came due 30 days later, I had a choice of paying the minimum (stupid), paying a portion of it (stupid), or paying it all (commonsense). I spent a good 15 seconds deliberating what to do, and came up with the following steps to show you how to pay off $35,000 in credit card debt.
1) Log into your bank account.
2) Identify which account (checking, savings, money market) has at least $35,000.
3) Transfer $35,000 to your linked credit card account and press send.
4) If you credit card account isn’t linked, send an electronic check for $35,000 from your checking account to the appropriate address.
5) Kick back and relax, knowing that you just got to borrow $35,000 interest free, while getting reward points in the process.
Pretty simple right? There wasn’t any funky 0% credit card transfers, nor was there a liquidation of investments, or a loan from my 401K . The bill was just paid off, like all bills are supposed to be paid off every single month. There’s no way I was going to let the credit card company charge me 9.8% interest for that month. Even with the 10-year yield below 3.5%, and inflation still benign, I cannot believe that the lowest rate I can get with a 780+ credit score is just below 10%. Ludicrous!
You might be wondering where the insight is. Well, it’s right in front of you. The reason why I can pay off $35,000 in credit card debt in one month is because I was approved by the credit card company. No credit card company will give you a line of credit without checking your credit history and income level to make sure that you can pay. If they never checked, they’d surely lose a ton of money with poor creditors and blow themselves up. Companies are not stupid if they plan to survive.
When you read stories about people paying off $70,000, $80,000, and even $100,000 in credit card debt, it’s not that incredible. The reason why they have $70,000-$100,000 in credit card debt is because they have a high level of income to support such credit lines. In other words, having such high credit card debt means you can afford it, otherwise, you wouldn’t have it in the first place!
You wouldn’t lend an unemployed 22 year old college grad with $100,000 in student loans much money, if any. Whereas you wouldn’t mind extending a $50,000 line of credit at a 10% interest rate to a doctor whose been making $650,000 a year for the past 5 years and has a 780 credit score. Everything is aligned, just the way it should be.
The media tends to trick you with asymmetric information. There’s really little to worry about with the typical US consumer. Only a small minority of people are delusional enough to spend more than they earn or have. Furthermore, everybody knows that not paying back what you owe is a highly dishonorable thing to do. The good thing is that credit card companies prevent you from blowing yourself up by giving you only what you can afford.
The next time you are amazed at someone paying off a huge amount of credit card debt, don’t be. Just like how no student gets into $100,000 in debt if they don’t plan to work in a lucrative field after college, Very few people get into massive credit card debt without being able to afford it. To do so would be like dropping dumbbells on your toes on purpose! You can never count out the US consumer. We are logical and strong like bull!
Related: Pay Down Debt Or Invest? Implement FS-DAIR
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