I’m about to incur a $5,000 debt. Here’s why I’m not worried


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Debt doesn’t always have to be scary.

Key points

  • Debt is much less stressful when you have a solid plan in place.
  • Avoiding interest charges can make debt repayment easier and faster.
  • Make sure you have backup plans in case your initial repayment strategy doesn’t work.

Some personal finance experts are adamantly opposed to going into debt. They will tell you to avoid it at all costs, no matter what, always and forever. Then there are the realists who realize that some leverage is necessary, even preferable in some situations. I tend to belong to the latter group.

This is also where I find myself at the moment.

Recently, our family car needed some work — okay, a plot labor – resulting in a bill of approximately $5,000. We explored the idea of ​​just replacing it, but ultimately repair was the way to go.

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Now I could have dipped into my emergency fund to cover the cost of the repair (or most of it, at least). But the idea of ​​putting such a dent in my savings account was not ideal. Instead, I decided to finance the repair, taking on a $5,000 debt.

Manageable debt is less scary

This is where you might be wondering why I think having four-figure debt over my head was a good idea. Most sane people avoid going into debt when there are other options. For me, however, the key is that the debt is manageable – and inexpensive.

What do I mean by that? Well, with some financial savvy, that $5,000 debt shouldn’t cost me a single penny in interest on my credit card. Without the danger of high interest charges adding to an already large debt, it reduces the time pressure to pay it off as quickly as possible.

How it works? A 0% intro APR credit card. Basically, I applied for a new credit card with an introductory APR of 0% for the first 18 months. This means I can carry a balance from month to month without accruing interest during this introductory period.

Minimum payments still required

Now, although I no longer have to worry about interest charges piling up, I will be still need to make at least the minimum payment each month to keep my account in good standing. If I miss any of these payments, not only will I receive late fees, but I could also lose my 0% APR intro.

To make sure that doesn’t happen, I like to set up automatic payments to cover at least my minimum payment each month. I will also make additional payments according to the plan I have developed to ensure that I pay the full balance before the end of the introductory period.

If the worst happens…

The main disadvantage of introductory APR offers is that they are only temporary. When the introductory offer expires, your APR will change to the standard rate – which with most credit cards means 15% or more. Depending on how much debt you still have at the time, this can quickly become very expensive.

But, I also have a plan if that happens. If the balance is low enough that I feel comfortable dipping into my emergency fund — and we’ve been lucky enough to avoid other emergencies in the meantime — I’ll pay back the rest of my savings.

If that’s not an option, then I’ll probably consider a balance transfer. If I can transfer the remaining debt to a card with a 0% introductory APR on balance transfers, then I can avoid accruing interest on that balance. I may end up having to pay balance transfer fees, but these are usually around 3%, which is much better than the 15%+ I would pay in interest without the transfer.

While I’m certainly not happy with the giant auto repair bill — or the resulting debt — I’m glad I have the knowledge and ability to handle it. A little know-how and a lot of planning means what could be terrifying debt isn’t as scary as it otherwise would be.

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