Extinguishing credit card debt is one of the most grueling debt-management processes imaginable. The high rates of interest most credit cards charge can make the process seem never-ending. And it’s demoralizing to see so much of your monthly payment go toward interest and so little go toward paying down the balance.
Worse is if you simply don’t have the kind of money you need every month to make the minimum payments without severely crimping your lifestyle.
But there’s a way you can repay your debt, without relying on the usurious vultures in the debt-consolidation industry.
And best of all … it will cost you a grand total of 3.85% over 10 years, or less than 0.5% annually. We’re going to talk about 0% balance transfer credit cards, of course.
Using 0% Balance Transfer Cards to Eradicate Credit Card Debt
The method here isn’t a trick or a gimmick, and the headline isn’t clickbait.
Rather, the debt-eradication plan is based on the strategic use of credit cards that offer a 0% balance transfer period. By selecting the right cards, and by strategically rolling your debt from one card to another – using the right formula – you can, literally, wipe out your debt paying just a modicum amount of interest, the equivalent of $58 a year.
Once I lay out the plan, you can double-check my research and plug the data into your own spreadsheet and see for yourself that this plan is about as perfect as you can get for repaying your debt as cheaply as possible.
Let me lay out the ground rules so that you understand what’s going on.
The Rules of the Credit-Card Debt Repayment Game
Rule #1. You start with credit cards that impose no annual fee, and that offer 0% balance transfer and $0 balance transfer fee – what I call “0/0/0 cards.” There are not a lot of these, but they absolutely exist. Of those cards, you start with the one that offers the longest 0% balance transfer period, usually 15 to 18 months.
Rule #2. When you’re about 3 months away from that card moving out of its 0% balance transfer period, you apply for the next 0/0/0 card on your list. When that card arrives, and just as the 0% APR period ends on the first card, you transfer whatever balance remains to the 2nd card.
Rule #3. Once you’ve have exhausted all of your 0/0/0 cards, you move on to no-annual-fee cards that offer 0% balance transfers by impose the smallest balance transfer fee. Those fees generally range between 2% and 5%. You start with the card that has the smallest fee, even if it has the shortest 0% APR period.
The reason: The fee is imposed on the balance that you transfer, and the smaller the fee, the smaller your payment.
You want to save the highest balance-transfer fee cards until they’re you’re only choice At that point, your outstanding balance will be much smaller, meaning the fee you pay is less painful.
Rule #4. When the balance-transfer fee shows up on your account statement, you pay it off that month, along with your normal monthly payment.
This will increase your payment for one month, but it also means you will not have a remaining balance at the end of 10 years. (By the way, you can change the 10 years to 7 or 5 or 8, or whatever period you choose and over which you can comfortably repay your debt.)
How to Calculate Your Personal Minimum Monthly Payments
Take your outstanding balance in Month 1 and divided it by the number of months over which you will repay your debt.
For this example, we’re repaying $15,000 in credit card debt over 10 years. So we have $15,000 divided by 120 months … or $125. This is your “personal minimum” and we will come back to that in just a second.
Most credit card companies require a minimum payment of 1% of the outstanding balance, plus the interest payment. Since there’s no interest to worry about, we’re looking at a minimum due of 1% of the balance. In our example, that means $150 in Month One, dropping to $148.50 in Month Two, and so on. Once your minimum due falls below your “personal minimum,” you pay the personal minimum every month until the debt is extinguished (remembering to add the balance transfer fee in the months that it occurs).
Don’t Use Balance Transfer Cards to Pay for Everyday Purchases.
We do not care about travel rewards, bonus miles or cash back. Some of the cards might offer that, but they’re all tied to spending some amount of money on the card to earn the bonus. This strategy is based what I call “debt warehousing” – we’re warehousing our debt on these no-interest cards simply to repay it without any interest payment. We don’t want to add to the debt because that will destroy the payoff schedule.
If you need a new card for spending, or you’re chasing travel miles and cash back, use a different credit card for that.
What Credit Cards I Used to Get 0.5% APR
The example I’m about to show is based on credit card offers that are available as of today (May 2019). Credit card offers change all the time, so the exact plan of attack below will likely be different as the offers change over the months and years.
So, each time a card is about to exit its 0% APR period, you will have to check this updated list of best balance transfer credit cards offers to find the next card to replace it – again, following the rules set out above.
Like I said, our example is a consumer with $15,000 in credit-card debt she wants to repay over 10 years.
With the crop of credit cards currently available (and assuming the offers were static for the next decade), this is a truncated view of what our consumer’s decade of repayment looks like:
|Credit Card||Months||Fee||Opening Balance||Monthly Payment||Ending Balance|
|Navy Federal Credit Union Platinum||31-42||0||$11,017.53||$129.01||$9,517.53|
|Aspire Platinum Rewards||43-48||0||$9,157.53||$129.01||$8,767.53|
|Barclays Ring Mastercard||49-63||$175.35||$8,767.53||$129.01||$6,892.53|
|US Bank Visa Platinum||64-83||$206.78||$6,892.53||$129.01||$4,392.53|
|Wells Fargo Platinum Visa||102-119||$64.28||$2,142.53||$129.01||-|
Our consumer used eight different cards (all reflecting current offers today, though that could certainly change) to methodically extinguish the $15,000 balance. Along the way, she paid a grand total of $578 in balance transfer fees (and no annual credit card fees) while completely avoiding interest payments.
Had our consumer relied on a personal loan with a 10% APR, which is the current going rate, monthly payments over the same 10 years would have been nearly $200, and the cumulative payoff would have exceeded $23,780.
So, with our debt-warehousing strategy based on 0/0/0 cards, we have effectively reduced monthly financial pain and we’ve saved of more than $8,000 interest payments.
The Wrap Up
Credit cards make it easy to accumulate debt, almost as tough it’s a game. Whip out your plastic to pay for a purchase and you never feel the same kind of financial sting you so when you part with actually cash. It’s financial psychology the credit card companies use to their advantage.
So, turn the tables. Use the credit card companies’ offers to your advantage.
By structuring a repayment plan built around debt-warehousing, and using as many 0/0/0 cards as you can find (and then using 0% APR balance transfer cards with the lowest balance transfer fees you can find) you can realistically fashion a strategy to repay your credit-card debt at an effective interest rate of less than 0.5%.