Cats, credit cards and catastrophes

By Peter Andrew

OK, I admit it: I'm a cat nut. Tati, the oldest of our three, had a mystery condition when he was very young, and it cost $10,000 to diagnose and treat it. True, most of that came from insurance, but we were still down several thousand dollars.

The world divides into people who completely get spending that sort of money on a pet, and those who are horrified or even outraged by it. I'm asked how I can justify shelling out that amount on an animal when there are people in the world who are starving. It's a fair point, but you can ask the same about all but the most essential household expenditure. The acquaintances questioning my priorities almost always have newer cars than mine (it's 18 years old), and I ask them to justify the cost of those. The starving were still around when those were bought.

Anyway, Sassi, our youngest cat (she's totally blind, and the cleverest, sweetest animal you've ever seen), now has lumps on her abdomen, and is due to return to the veterinary clinic on Thursday for biopsies to be taken. If the results are bad, there will be no cash limits on getting her better, although there will be ones on the suffering she should endure, should a brief and miserable extension to her life be all that's on offer. Time to cheer up! No point worrying before we get a diagnosis.

Cat-astrophes and credit cards

Anyway, pondering the possibility of some astronomical vet bills set me thinking about how best to pay for any treatment. Regular readers may remember that I recently came into a modest inheritance, so for the first time in my life I have an emergency fund, and -- according to my admittedly freakish priorities -- this definitely counts as an emergency.

But what would I have done a couple of years ago, when money was much tighter? And what could the significant minority of Americans who have no emergency fund do if they were faced with a cat or non-cat catastrophe?

Writing on Yahoo Finance recently, Laura Quinn came clean and admitted she would do what most of us would: reach for her credit cards. Laura is clearly a highly responsible money manager who has strategies in place to achieve long-term goals, but she explained that she would put these (paying down her mortgage early, and building up retirement savings) on hold so that she could zero her card balances after "a legitimate financial emergency."

Zero interest balance transfers

Laura makes no mention of zero percent balance transfer credit cards, and I'm wondering if that's because she doesn't know about them or doesn't like them -- or maybe it's just that Yahoo didn't give her space to mention them. In any event, they can be a useful tool for those who face small-scale emergencies involving a few thousand dollars. Laura described three such minor issues that she'd had:

1. Fixing an air-conditioning unit. (It was summertime in Florida, and I'm on her side in regarding that as an emergency.)
2. Covering unexpected medical bills.
3. Paying unanticipated dorm-cleaning fees for offspring in college.

Zero percent balance transfer cards would have allowed Laura to take her time in zeroing her plastic after these, because, once she transferred the balance from her existing card to her new one, she would have had to pay no interest for the introductory period. So she might have been able to keep paying a bit extra on her mortgage, and topping up her retirement fund. Although there's no guarantee they'll all still be there by the time you click through, at the time of writing MoneyBlueBook.com is listing cards with 12-, 15- and even 18-month introductory periods.

Besides the possibility that the thought never occurred to her, Laura may have had two good reasons for avoiding balance transfer cards:

1. You need a reasonably respectable credit score to stand a chance of getting approved for one.
2. Many people use these cards unwisely, making more purchases on their new or existing plastic, and ending up with more debt than they started with.

Alternative forms of borrowing

If you're a homeowner with some equity in your property, and you want a stand-by source of funds for emergencies and other spending, you could consider setting up a home equity line of credit (HELOC). After years when these were all but unobtainable, they're beginning to make a comeback, according to industry reports. As with all forms of borrowing, HELOCs have their cons as well as their pros:

1. Their interest rates are almost always lower than those for credit cards.
2. They're flexible, and you can borrow as little or as much (within your credit limit) as you want.
3. You can find fixed-rate HELOCs that, while generally more expensive at the start, can protect you from rising rates.
4. Unlike with credit cards, your home is at risk if you fall behind with payments.
5. You have to pay closing costs when you set up a HELOC, and these can make this sort of borrowing expensive unless you use your credit line quite a lot.

There are many other factors to consider before deciding on one of these, and you should download "What you should know about Home Equity Lines of Credit", a Federal Reserve PDF publication, before going down this path.

Not borrowing is best

If you possibly can, your best bet is almost certainly to save for unanticipated financial catastrophes. Check out my colleague Holly Johnson's "5 tips for building an emergency fund" for suggestions that might help you achieve that.

As for my personal potential cat-astrophe, I'll post more about Sassi in the comments section below, once her biopsy results are in.