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How To Use 0% Credit Cards To Eliminate Debt

0% APR credit cards can save you lots of money With the state of the economy, many people are looking for ways to consolidate credit card debt and eliminate their debts once and for all.

While 0% APR credit card offers are getting harder to find, they can be a great way to consolidate debt and eliminate your outstanding balances – if used properly.  Here’s how….

Use 0% Credit Cards To Pay Off Existing Debt

Traditionally, there were two ways to consolidate your credit debt.  The first way was to get a debt consolidation loan.  The second way was to get a home equity line of credit (HELOC).

Honestly, most people never considered using a series of 0 APR credit cards to pay off the credit card debt with little interest.  In some instances, this may be the best option. If your credit is in good shape, a 0% credit card will allow you to payoff your credit card debt even quicker than a consolidation or home equity loan.  If you can secure a 0 interest credit card, you will be able to spend virtually all of your monthly payment eliminating principal instead of paying interest.

How To Use A 0% APR Credit Card To Eliminate Credit Card Debt

The process for using a 0 interest credit card to eliminate credit card debt is really straightforward.  Follow these steps:

  1. Transfer your existing credit card balances to a 0% credit card.
  2. Continue to pay down your balance as usual. But instead of paying just the minimum each month, add the amount of interest you saved and pay it as well.
  3. Keep a careful eye on the introductory period.  One month before it expires, begin to shop around for a new interest free credit card offer and transfer your balance again.
  4. Continue this cycle until you’re debt free.

Author’s Note: Be aware of these two traps when using this procedure.  First, with the recent changes in the credit card industry, you will find that you will incur a 3-4% balance transfer fee.  Second, transferring credit card balance repeatedly can slightly impact on your short term credit score.  But, in my opinion, this impact is greatly outweighed by the savings in interest.

0% APR Credit Cards vs. Debt Consolidation:

Still thinking about a credit card debt consolidation loan instead of a 0% credit card?

Well, let me wow and amaze you.

Let’s examine the details to see how much you can save, and how much quicker you can pay off your debt using the method shown above:

Assume you have an existing credit card debt of $15,000. You’d like to pay $250 per month until the debt is paid off. Your debt consolidation loan was approved at 7% which is quite a bit lower than that 16% APR credit card.  Congratulations on negotiating such a great deal!!  Let’s see how that works for you:

  • Beginning Balance:        $15,000
  • Total Amount Paid:        $18,516
  • Total Payments Made:            75

Now let’s compare paying off this same debt using 0% APR credit cards.

  • Beginning Balance:         $15,000
  • Total Amount Paid:         $15,000
  • Total Payments Made:            60

Your savings are $3,516 over sixty (60) months.  You will be debt free 15 months before your debt consolidation loan is paid off.

Using The 0% Credit Card Method:  Caveats And Cautions:

It is clear that consolidating credit card debt with a 0% APR credit card can be a real solid financial move.  However, you need to observe these cautions and precautions when using this strategy:

  1. Do not switch credit cards more than necessary as it can negatively impact your credit report.
  2. Search for the 0 interest credit cards that have the longest 0 APR periods
  3. Check the APR on balances after the introductory period to make sure you aren’t hurt in the event you cannot continue to transfer the balances.
  4. Do not continue to use the card after you pay it off.  But, do not close the account either.  Closing the account can adversely impact your credit score.  Just cut the card up and forget that it existed.
  5. Do not overspend with your new credit card either even if you can make purchases at 0% APR.
  6. Be sure to apply the money you save in interest (all of it!!!) to the payment as extra principal.  You will eliminate your debt much faster.

If you observe these tips and shop carefully, you may find that a 0% credit card strategy is a useful and lucrative alternative to consolidating your credit card debts with a traditional debt consolidation loan or home equity line of credit.

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