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Make minimum credit card payments

Question: I recently gave 2 weeks notice at my job which I recognize is slightly insane in this economy, but I'm confident that it was the right decision. I have enough savings and annual leave to not work at all for at least 6 months, but I'm not expecting that to be the case as I also have some freelance work lined up and on the horizon. Over the last year, I've made a significant dent in my credit card debt. My question is: while I'm unemployed, should I continue to pay over and above the minimum balance as I've been doing or should I pay only the minimum balance until I have a full time job again? I should say that my budget calculations for not working for 6 months were based on paying only the minimum and on not having any freelance work coming in. Thank you, Antoinette, Brooklyn, NY

Answer: No, you are not insane. Far from it. Despite the economic downturn and all the financial problems we're living through you still need to weigh the odds and, when it makes sense, take a risk. It seems to me you've thought through your job change well. You have a plan and you have savings. For now, I'm comfortable with you keeping financial flexibility by making minimum payments for a couple of months.

Here's a small trick I picked up from a new book by Gerri Detweiler, Nancy Castleman and Marc Eisenson, Reduce Debt, Reduce Stress: Real Solutions for Solving Your Credit Crisis. (I know you aren't anywhere near a credit crisis, but I like the tip. I'll write more about the book another time.) It might be a smart financial move for you. It's at least worth considering assuming you don't add to your credit card balance.

The basic idea: You pay the minimum required credit card payment this month. Your minimum payment should go down slightly next month. But you send in last month's required payment and you continue to do that for the next several months. The financial impact is very slight at first, barely noticeable. Yet applying just a little bit of extra money every month eventually gathers momentum. With this technique you won't strain your finances, but when you get your next job it will be that much easier to eliminate the credit card debt.

I hope you find the kind of work you're looking for.

06/09/09 by Chris Farrell

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Changing careers

Question: I spoke to Chris about 6 years ago. My dad had died in March of 2001 and left me and my brothers and sister a little money. Chris's advice was to divide it into 3 amounts: cash, mutual funds, and equities.

Well, I'm sad to say that my mom died this past February. She had sold the farmland late last year, and so she's left us that, and next year we'll get the rest of dad's money. Which is, it turns out, quite a bit.

I want to write full-time, but I don't want to squander my mom and dad's legacy. Their memory is dear to me. I want to write their and my story. Can you recommend how I should proceed? Note: I'll be 42 years old this October. David, Birmingham, AL

Answer: I'm sorry for your loss, and understand the care you want to exercise before taking your next step. There are many issues to consider before making the kind of shift you're contemplating. Lots of people these days are intrigued by the idea of changing careers. They want to do something that makes a difference. They want to do something that offers more meaning to their lives. Like you, they have a dream. It's wonderful. It's also the case that careful research and planning can increase the odds of success.

That's where a financial plan comes in. Of course, how much freedom and flexibility you have largely depends on how much money you're inheriting. That said, here are some classic techniques to consider when making the shift. Many people find it's smart to work part-time and tap into savings (in your case inheritance) to make up for any shortfall. Another time-honored tactic is to give yourself a set period of time--perhaps 6 months to one year--to pursue your dream and pay yourself a "salary" from savings. That is what you live on, and no more.

In some cases, employers will entertain proposals for a longer period of time away from the office through a mix of vacation, furlough and sabbatical.

It's a good idea to give yourself a target date to evaluate whether this is working. It could be anywhere from 3 months to a year. An evaluation date will help prevent you from running through the inheritance.

A key question is what will you do for health insurance coverage during this period of time? You don't want to be without it, and many people find this is the main stumbling block to get over in devising a career change.
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So, my bottom line is use this time to play with the numbers, explore your job options and come up with a practical plan. You should also get practical money advice by networking with other writers in your community. Most veterans are more than willing to share their insights and experience. Good luck.

07/27/09 by Chris Farrell

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Stock options

Question: My husband is a mid level executive and he receives stock options yearly as part of his compensation. Since the stock prices have been continually declining at his company, we now have five year's worth of options we are unable to exercise. Aside from the stock price increasing, is there any way we will be able to recoup this money? Mary, Milwaukee, WI

Answer: Your husband's situation isn't uncommon among publicly-traded companies. Many executives now hold stock options that are worthless because the "exercise" price is greater than the market value of the underlying stock. In other words, you'd lose money if you exercised the options. The Wall Street metaphor for this experience is that the options are "underwater". Descriptive, isn't it?

There's nothing your husband or you can do. It's really up to management and the board. They can decide to leave the current option awards program unchanged. In that case, everyone will have to wait and see if the stock price improves before the option grant expires. The employee optionholders remain in the same financial boat as shareholders. However, some companies have decided to take a different tact. They are rewarding employees by substituting their old underwater options for newer ones with a lower exercise price, retiring the options and issuing restricted stock, or by exchanging cash for the options.

10/29/09 by Chris Farrell

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