Every day I head into the world somebody wants to talk about how to pay off that $5,000 or $10,000 in credit card debt they have from years ago. The stories of how people got into trouble seldom change, but the one thing that remains is you people want out of the rat race of paying off high interest credit cards.
There is an answer I have followed for years in this regard. I have ran up over $10,000 in revolving credit and pay it all down to zero in less than two years. I now hold a credit balance of over $5,000 on $50,000 of available credit without flinching a eye. It simply doesn’t bother me, and the reason why is the credit cards companies are letting me manage my debt for as little as $200 hundred dollars a year.
Behold the balance transfer. Im my opinion this is one of greatest tools for those who wish to become, and stay, financially secure. With this tool I have watched my parents pay off business debts of nearly $100,000 in as little as three years. I can float a balance of any business or personal expense for APRs(annual percentage rates) less than 1%.
Most of the young professionals I come across have one or two late payments and about 75% debt-to-income ratios. This means when you go the bank they will try and make you feel like you are not worthy of any financial products. The catch-22 is the banker needs you to open an account to keep his/her commissions rolling in. And if your personal banker doesn’t seem to have the solution goto another. The are thousands of lending institutions in the country.
Here is how you do this:
Apply for a credit card with a 9 month or more 0%-2% balance transfer offer. if you have to apply at 30 banks, so-be-it. Do it! I cannot tell you how many times I have had this conversation with a young person with a beer in their gut only to find out they are unwilling to get the guts the next day. One person I now insists on joining a credit union to run this strategy. I disagree, because if you are committed to paying off your debt, or getting the best rates, the big multinational banks are the way to go. Just don’t forget to pay.
After you get approved for the card transfer 80% of the limit in as few transfers as possible. Normally banks will charge you a three percent fee for each transfer you make. So less is more in this situation. The other thing to consider is to transfer your highest interest rate care first. The goal is to not pay interest so remove the dead weight first. Then refuse to pay any additional principle on any remaining debt you have.
Look at these cards and there rates –
BANK 1 – $3300 @ 21%
BANK 2 – $600 @ 18.6%
BANK 3 – $1250 @ 13%
BANK 4 – $800 @ 28.6%
If you could get a transfer offer for $5000 transfer cards from BANK 1 and BANK 4. Then only pay the minimum payment on the others. Make sure you pay everything on time. By saving 10% of you income, and paying off debt with 20% of your income you can make a substantial dent in that $4100 on the new card.
If you can get the 9 month transfer as the eighth month approaches you probably have noticed other transfer offers in the mail. The most important here is sift through them just as you did before and look for one with satisfactory terms. You can argue with most bankers to extend you credit at this point in part because you have more experience, and your debt-to-income ratio should have decreased. Keep doing this until you have paid off all of your debt or have gotten to a comfortable point in holding debt for the long term. I will write about the advantages of never fully paying off any debt in a future post.
Hope you learned something about debt and how the to slowly grab your finances by the horns.
Stay hedged, Stay happy,
Margin of Safety