In my previous post about what I've learned from paying off my credit cards, Kasia asked how I managed to transfer it around to keep the interest low/non-existant. Since that's likely a question a lot of people I have, I thought I'd answer it here. Please keep in mind that this won't work for everyone, as the credit situation is changing all the time, and the cards and limits you can be approved for depend on your particular situation.

Also know I am doing this from memory, so the details may not be exactly right.

So, at the time I decided to get serious about paying down my debt, in January 2008, I had about $11,300 total. It was divided onto two cards, a Visa with my bank that has I think a 12% interest rate, and a Discover card with an introductory 0% rate that I got through a mail offer. The 0% card was maxed at I think $9,000, leaving about $2,300 on my bank card.

The first thing I wanted to do was transfer the debt that was on my bank card to a 0% card. So I went here and searched for cards with 0% interest on balance transfers. I found a card that had 0% for balance transfers for a year, and applied for it (I think it was this one). I was approved with I believe a $4,000 credit limit, so I transferred the whole $2,300 immediately. I was charged a fee for the balance transfer, but I honestly can't remember how much it was--I am thinking $60-$80. Since that $60-$80 works out to only 2.6% to 3.5% of the balance, I was ahead.

Next, I paid at least the minimums faithfully every month on both cards. This is very important with 0% balance transfer cards, as even one payment one day late gives them the right to jack your entire balance up to whatever interest rate they say (in the case of these cards, I think one would have been 18% and one 22% or something like that). The other thing to make sure of is NOT to use the cards, since that 0% is only for balance transfers and new charges accrue regular interest. This is especially important when you realize that the new charges don't start being paid on until ALL of the old ones are paid off, so you'll be accruing interest on them until the card is completely paid down.

Then I waited until the end of the 0% period, putting me sometime last fall/early winter. About a month before the end of the 0% period, I called both cards and asked if that 0% could be extended. I did this to save myself transferring the balances again if I didn' thave to. Both cards declined my request, so I went back out and searched for a new 0% card.

At that point, due to either a change in my credit rate or in the greater economy, it was a little bit harder to get a 0% balance transfer card. I was denied for the first one for which I applied, and the second one only gave me 6 months at 0% and a very low maximum (I think $3,000). Since I still had more debt than that, I applied for another card that was similar and got it as well. I then transferred what was left of my balance onto those two cards, paying another $60-$80 each in transfer fees.

Once again, I paid faithfully (using direct withdrawl to make sure I didn't miss a payment) and didn't charge anything new on those cards.

About a month ago, that six months was up. I still had about $3K left to pay off, so I applied again for a new 0% card and got one for 6 months with a maximum of $4,000. I transferred what was left from the other cards onto that one, paid another $60-$80 transfer fee, and have since been paying that one off.

At this point, I have three open credit cards. These are the original two (the Visa from my bank and the first Discover card I had) and the last 0% card that I just paid off. I will be closing the newest one and keeping the two older cards, as I have been advised that older accounts are better for the sake of your credit rating, and the Discover card does provide cash back incentives. Neither of these cards has a particularly good interest rate now, but as I don't plan to carry debt, that should not matter.

So how much did it cost me to pay this debt down? If I assume each transfer fee was $80, it cost $320 in transfer fees. I made no interest payments. The current average consumer credit card interest rate is 14.7%. If I assume interest at this rate, it would have cost $1,060.98 in interest to pay down the same amount of debt in the same amount of time (you can calculate that here). For that kind of difference, the juggling and opening and closing accounts was definitely worthwhile. I was concerned that it would mess up my credit rating to have opened and closed so many in a short time, but it doesn't seem to have done so.

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April 2012

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