October 7th, 2008

The Debt Detonator: A Plan for Eliminating Credit Card Debt – Step 3

From the Previous Posts:

Step 1 – Calculate Your Debt to the Decimal Point
Step 2 – Lower Your APRs

Step 3

Transfer Balances

Balance transferring enables you to put more money back in your pocket by transferring balances from a card with a high APR to a card with a 0% introductory APR.

In Step 3, Oliver is going to shop for a credit card that offers a 0% APR on balance transfers and ideally no fee for providing the balance transferring service. Ideally, he would obtain a card with a 0% APR on balance transfers for at least a year and a low APR after the introductory rate of 0% expires.

For instance, Oliver has a card with a $12,000 balance. If he transfers half of that balance he is cutting his finance charges down in half.

Finance Charges Before:

$12,000 on 14.99% APR Card: $1,798.80 a year.

Finance Charges After:

$6,000 on 14.99 APR card: $899.40 a year.

$6000 on 0% APR card: $0 a year.

Amount Saved: $899.40 a year.

This is an even more dramatic difference than what he saved by lowering all of his APRS combined.

Word to the Wise:

Make sure to note on your spreadsheet when the 0% introductory rate on your new card ends and what the new APR will be when once it kicks in. This way you can rethink your payment strategy as the time approaches.

Pay your bills on time every month and make sure not to exceed your credit limit. Many credit card companies will kick in a much higher APR if you don’t pay your bills by the monthly due date and/or go a cent above your limit. This will destroy all of your hard work to lower your APRs and save money in the first place!