The Start Digging Out Of Credit Card Debt Challenge – Week Six.

So, it has been about a month since the last time I posted an article for the challenge. How’s it going? Have you had any success in lowering your credit card interest rates? Any luck setting up bi-monthly payments? Everything going according to plan? Let me know any concerns you may have…

But while I am here, I wanted to throw another wrench into the system; the 0% balance transfer offer. You know the ones…the one’s your friends are using for credit card arbitrage and for buying big screen televisions. But you know there is a much better use for them – paying off your credit card debt. Today I want to discuss how to make this work for you.

By combining all your debt onto one credit card at 0% or a low interest rate not only saves you a ton of money but also makes your financial life a whole lot easier. By only having one bill to pay every month, you can really consider how much you can send this card on a bi-monthly basis. If you used to have 4 payments going out the door to different credit cards, you can now combine them all into giant payments aimed squarely at that one card. Simple, right?

Not so fast. There are a few ways you can do this. I think the easiest way to do it is to first contact a card that you already have and don’t have a balance on and see if they can offer you a 0% or low interest balance transfer. That way you are not opening any more accounts nor are you dinging your credit score even further. But if you are in debt already, you might not have this option, and that’s OK. If you have good credit, you can always apply for a new card that has an introductory low interest period of let’s say 12 months. That gives you a full year of every dollar you send to them going directly towards principal. Nice! I keep a list of 0% balance transfer cards which is a good place to start when you go to apply for a card.

There are a few things to keep in mind when doing this. Number 1, be sure you ask for as much credit/transfer availability as you need. Having $5,000 in debt and only getting a balance transfer worth $1,000 is not going to help you much. So when you fill in the application, be sure to ask for the amount you actually need. Number 2, watch out for balance transfer fees. I know some people have a problem with them, and I do to, if they are not capped at a certain point. I would go for cards that either have no fee or have a fee capped at $75 or so. Some are sneaking in no-limit fees, so you might end up paying 3% of your balance – no good! Stay with the cards that at least have a cap. The reason I am OK with these is even by paying the fee, you still come out ahead in the long run by not paying interest on your debt for a year.

Keep in mind there are also a few ways to get access to the balance transfer money. My favorite is asking the new credit card to issue you a check or put the available funds directly into your checking account. That way you can write checks to all the other credit cards to pay them off, thereby consolidating all the debt onto the new card. The other way is to tell the new card (on the application) to pay off the balances of card X, Y and Z directly. Either way will work.

I hope that helps explain the balance transfer game and the different things you should look out for when trying to set one up. I will be back in a few weeks with another update and post about the challenge, so in the mean time keep working on getting your debt paid down, however you decide to do it, and let me know if there are any questions I can help with. I am no professional, but I do know some things, so I would be glad to assist!

If you missed part one of this series, you can read it right here, part two is available right here, part three is available right here, part 4 is available right here and part 5 is available right here.