Paying for gender transition: Loans and credit

Same example again: I dream of getting vaginoplasty with Toby Meltzer for $12,000. However, in reality, I have $0 in savings.

This time, though, let’s change the time frame: I dream of getting surgery in 2 months.

How the heck am I gonna do that? Well, I’m gonna have to either beg, borrow, or steal. I ended up choosing the middle one.

The cost of credit

Remember how I said time was money? I had a choice of one or the other:

  • Saving was the cheaper but slower route.
  • Credit was the more expensive but faster route. However, this was contingent on being able to get credit. Everyone can save, but not everyone can get credit. I got lucky and was able to borrow the money I needed.

Below, I go over some of the good and bad things about borrowing, and then I go through some of your borrowing options. There are two basic types of credit: secured and unsecured.


Secured credit

This is money you can borrow that requires collateral. In other words, they’ll lend you the money, but you have to sign a contract saying that if you don’t repay the money, they can take something you already own like your car or house, etc.

Look at your list of assets from Exercise 3. Some of these items can be used as collateral to secure a loan.

Other terms and options to consider:

Home equity loan

This is a loan from a bank using your home equity (the amount you already paid toward it) as the securing instrument. Of course, this requires that you own a home and have enough equity to cover the cost of the money you want to borrow. Some home equity loans are offered at 125% of the value of your home. So, if you have paid $10,000 toward your home, they will offer you $12,500 in credit.

Here’s the catch: if you don’t repay (called defaulting), they get your house. There are other potential drawbacks you’d need to discuss with a financial professional.

Second mortgage

This is a loan on real estate which has already been pledged as collateral for an earlier mortgage. The first mortgage has dibs on your house if you default, and once you pay off that one, you get to pay of mortgage #2. Again, there are other potential drawbacks you’d need to discuss with a financial professional.

Credit union

These are kind of like banks without so much profit motive. A federal credit union is a nonprofit, cooperative financial institution owned and run by its members to provide all members a safe place to save and borrow at reasonable rates. Members pool their funds to make loans to each other.

To join a credit union, you must be eligible for membership. Each institution decides who it will serve. Most credit unions are organized to serve people in a particular community (state or city), a group of employees (teachers, etc.), or members of an organization or association.

The National Credit Union Administration has a nice site with a list of credit unions by state.

Borrowing against your retirement money

Sometimes you might have a percentage of your profit sharing or ESOP at work available as collateral for borrowing. Check your annual statements and human resources people for information on this option.

Borrowing extra for student loans

I know someone who did this. Just be sure you get enough to cover tuition and transition. Usually, they will only loan you money based your financial aid package, and usually someone has to co-sign your loans. That means if you skip out, they’re stuck.

Co-signed loans

If you don’t have the collateral required, someone who does signs for your loan as well. If you don’t pay, they do. Obviously, this person is counting on you to meet your obligation, so don’t screw them over.

Borrow from family or friends

If you are lucky enough to have friends or relatives who can loan you money, you can sign a promissory note to them and get the money. If they trust you, they might not even ask for collateral. If you’re really lucky, they might not even ask for interest. Most people don’t have this option (or they wouldn’t be reading this), but it never hurts to ask if you think it might happen.

If you don’t have anything to offer as collateral and no rich friends or relatives (like me), you need to look into unsecured credit options.


Unsecured credit

This can be a real butt-kicker financially. The most common sort of unsecured credit is a credit card like Visa or MasterCard issued by a bank (obviously , a retail card like your Sears card isn’t going to work unless you can purchase SRS through Sears). If you are approved for the credit card, you get the money you need immediately, but at a very high price. I’ll show you just how high in a minute.

Other terms and options to consider:

Higher interest

Your annual percentage rate (APR) is usually adjustable, meaning that it can go up or down during the year. Usually the fluctuation is based on the prime rate, or the amount the federal government has set for the standard that day.

Some credit cards come with a teaser rate. This is a low introductory APR that usually only lasts a few months. After that, the rate goes WAY up.

If you plan to charge a major transition expense, you should check to see if the provider accepts credit cards.

Cash advance

If you can’t charge your transition expense, you still might be able to pay by taking out a cash advance. However, there are drawbacks to this. Usually, you can only get a cash advance for a part of your credit line. A $12,000 line might only allow a $3,000 cash advance. Usually cash advances are at an even higher APR than purchases. Look on your statement to see how much is available for cash advance and what the interest rate is.

Credit bureau

This is an agency which collects and sells information about an individual’s past borrowing and repaying behavior. This is summarized in your credit rating, or how safe a bet you are for repaying your debts. A creditor will usually get a copy of this report to determine if you are a good risk. You should also get a copy to make sure everything is OK. This is especially important if you changed your name or social security number, since this information may appear on your report or make your creditworthiness look odd.

Credit limit

This is the amount of credit a bank is willing to float you. With credit cards, there is usually a charge of $25 or more for going over your limit. How to jack up your limit:

Pay monthly Good customers get better credit. The better your credit, the lower your rate. Get rid of retail cards That frees up those limits for other cards you could use for transition expenses. Transfer balances When you get a credit card offer, transfer your balance to a new one and keep the old card. You could potentially double your amount of credit this way. Bug them Call and bug them about more credit. I found that if I called about every three months, I could get my credit limit raised a little more. Call and bug them about lower interest. If you can, tell them you’re considering a transfer balance if they don’t lower your rate. It’s best not to bluff, If you have an actual offer in front of you, this threat will carry more weight. 

Think of the monthly payment like saving after the fact

When deciding how much credit card debt you can take on, you’ll need to look at the amount you’ll have available each month after covering all your other expenses. It’s the same amount you’d have available if you were saving for transition. The cool thing is that credit cards have very low minimum payments that barely cover the interest plus a tiny bit of the principal each time. Do not take on more credit card debt than you can pay off. Figure out the minimum payment they will require each month, and don’t go above that level.

Late payment charges

Another reason not to take on more debt than you can handle is that credit cards really kick your butt with late charges of $25 to $50 per card each month. Ouch. If you decide to charge a big transition cost, make sure you pay on time each month.

Save money: Pay it down fast

If you want to lower your total costs, use your available disposable income to pay it down as fast as possible. Especially early on. If you can put just one dollar a day more toward repaying, you can shave 9 months and over $2,700 or the payment time and amount in the credit card example below.


Examples

As I said, the price of instant gratification is… well, price. Here’s a few examples.

FinanCenter is a truly outstanding website for personal finance. FinanCenter’s clickcalcsTM are a simply fantastic collection of over 100 calculators for figuring everything from savings, interest on loans, budgeting, and credit cards.

Note: the calculator has a disclaimer– “The accuracy of this calculator and its applicability to your circumstances is not guaranteed. You should obtain personal advice from qualified professionals.” Very true.

Clone this window or open a second browser page so you can have this page and the calculator up at once.

Bank loan

Same example again: I dream of getting SRS with Toby Meltzer for $12,000.

I apply for and get a bank loan for $12,000. For comparison, let’s take the savings rate from the last page of $303.00 as our payment each month. Let’s also keep the same 6.5% interest rate from the saving example.

The calculator we need for this is for credit cards but works fine for bank loans, too:

What will it take to pay off my balance?

  • Amount Now Owed: $12,000
  • Future Monthly Charges: $0
  • Future Monthly Payments: $303.00
  • Annual Rate: 6.5%
  • Annual Fee: $0
  • Desired Months Until Pay Off (leave blank)
  • Future Rate Change: None

To pay off $12,000 by repaying $303 a month at 6.5% interest, it would take 45 months and an extra $2,727.

Now, wanna see something really scary?

Credit card charge

You know the dream: I dream of getting SRS with Toby Meltzer for $12,000.

She applies for and gets a credit card with a $12,000 limit and a 19.5% interest rate and no annual fee. After charging her SRS, she never uses it again (the card, that is…). Let’s take the savings rate from the last page of $303.00 as our payment each month.

What will it take to pay off my balance?

  • Amount Now Owed: $12,000
  • Future Monthly Charges: $0
  • Future Monthly Payments: $303.00
  • Annual Rate: 19.5%
  • Annual Fee: $0
  • Desired Months Until Pay Off (leave blank)
  • Future Rate Change: None

To pay off $12,000 by repaying $303 a month at 19.5% interest, it would take 65 months and an extra $8,787.

Comparison chart

So, if the above four financial options were available to me, I’d have to decide what was more important:

Saving Investing Bank loan Credit card
When can I get SRS?in 36 monthsin 33 monthsnownow
How much do I have each month?$303$303$303$303
Interest rate6.5%15.0%6.5%19.5%
How much more will it cost this way?$0$0$2,727$8,787
The same surgery will cost:$12,000$12,000$14,727$20,787
Total number of months paying $30336 months33 months42 months65 months

Obviously, these are just examples. As I said up front, if you have the option between saving or credit, you’ll have to decide if time or money is more important.

Next: Bankruptcy as a last resort