How to Pay off Credit Cards Quicker

by Tim McMahon, Editor

If  you have $5,000 - $10,000 in Credit card balances
You can save thousands using this simple method

 Have you ever wondered how you can ever get out from under all that debt?

If so you are not alone! The average American household has over $5000 in credit card debt and many cards charge 18% - 21% per year in finances charges. 

Did you know...

If you owe $5860 at 18% interest you will end up paying over $1000 in interest in just one year?

That means...

If you pay the minimum balance you are just paying the interest and you will NEVER get out from under all that debt. 

Worrying about all that debt has to be stressful !

But if I could let you in on a little secret how you can sneak out from under that load of debt to a life of less worry about those bills would you be interested? Of course you would, who wouldn't?

If  the first $1000 you pay just covers the interest and doesn't even make a dent in the principal, the key is to bypass the interest. At first you might be thinking, "that is impossible" the banks won't allow it. But that isn't true.

How to By-Pass the Interest

Your current bank won't let you just stop paying interest but that doesn't mean another bank won't. You see... banks are fighting with each other to see who can grab the most of those $1000/yr. income streams.

Put yourself in their place for a moment... What would you do to guarantee that someone would pay you $1000 per year for life? Would you be willing to give them the first year free?

That's exactly what banks are doing! They figure that once they have you it is a gravy train for them for years and years to come. So why not offer 0% interest for the first year?

Make the Bank's Greed Work for You instead of against You

So what we need to do is figure a way to beat them at their own game.  If you pay the balance in full every month you get to use the bank's money for a month with no interest charges. Not bad free money...

However, once you rack up a huge balance it isn't possible to do that. So... that is why banks make it so easy to get the money. They want you to be in debt. So many banks offer  a 0% "Introductory Rate" which usually lasts for 12 months.  This is to give you time to rack up a big bill that you can't pay off.

But what if you could "turn the tables" on the banks and use that time to pay off your bills?

Use the  extra $1000 to pay down the balance

The key is simply to transfer your balance from a card that is charging you 18% to a new card that is offering 0% interest  and use the extra $1000 that would have gone toward interest on your old card to help pay off the balance during the 12 month introductory period. Simple right?

Be careful once the 0% period expires because rates will jump up.

You want to be sure to use the introductory period to get ahead (not further into debt). 

Simply  Divide your current balance by 12 depending on the card you have chosen. If you owe $5000 it would be $5000 divided by 12 which equals $416.70

Then make payments of 1/12th each month

Remember at least $67  out of that $416.70 would have gone toward interest under your previous card!

What if your balance is so large you can't make payments of 1/12th ?

Don't think you can make payments of 1/12th? Pay 1/24th and get a different zero% card 12 months from now.   1/24th of $5000 is $208.33 

Remember this is only temporary! But if you can make a serious dent in your debt during the introductory period  you will be way ahead.

Can you come up with $141 a month to get you out of debt?

To pay off the $208.33 you really only have to come up with an extra $141 a month ($208.33 minus the $67 you are already paying in interest). Most families initial reaction is "Oh we don't have an extra $141 per month!!!" But I am willing to bet that you do! The secret is knowing where to look!

Where to look for the Money?

How often do you eat dinner out? Fast food or Restaurants?

2-3 Times per week ?

If you eat out 10 or more times a month (2-3 times a week) An average family of 4 will spend about $30 at McDonalds for a meal... so 10 meals will be about $300 right there.

Give up one McDonalds meal a week = 4 x $30 = $120/month

Give up one Restaurant meal a week= 4 x $50 = $200/month

How much do you spend in vending machines for cokes and snacks?

Give up one candy bar or Coke from a vending machine a day = $30/ month

Do you take your lunch to work or eat out?

By bringing your lunch from home you can easily save $6/day x 5 days = $30 per week. $30 x 4 = $120/month.

What about potato chips...Soda or beer... or cigarettes? How much do you spend a month on them?

Two bags of Chips per week  $3ea = $24 / month

Soda $20 - $30 / month

Beer  ?               $$$ / month

Cigarettes?     $$$/month

Total  

Here is how much one family could save:

Dinners $120+ Lunches $120 + Vending $30 + Beer $50 +Cigarettes $100=

Total  savings $420/month

Of course your spending patterns will be somewhat different but...

 I'm sure if you really put your mind to it you can find a way to come up with enough to pay 1/12th to 1/24th of your credit card debt off every month. Other ideas include having a yard sale and selling off things that you never use like those old golf clubs or treadmill that are just gathering dust in the garage. 

(A better idea would be to give up  the chips and start using the treadmill and use this as an opportunity to not only get your finances in shape but your body as well. Giving up McDonalds and potato chips might be a good start!)

Very Important!

If you can't eliminate all of your debt the next best thing is to at least take a big bite out of it. When the introductory period is about to  expire find another new card with 0% and start the process all over again.  Don't get caught when the card rate jumps up from Zero!

Make it a Habit

However much you decide to pay toward reducing your debt... make it a habit and pay that amount toward the debt every month.

Better yet,  schedule the payment so 1/12^th or 1/24^th or whatever,  is taken out of your checking account every month without your having to think about it. Make it like your house payment, it has to be done every month no matter what! You will be amazed at how little you will miss it if you schedule the payment and don't even have to thnk about it.

The key to this system

The key to this system is to not use the new card for new purchases until you have it entirely paid off (and then always pay the entire bill every month).

What About New Purchases?

So you might wonder what you are going to do about new purchases for the next year. The first rule is NEVER, NEVER, NEVER, NEVER, NEVER buy anything you can't pay off when the bill comes. (Unless it is on a zero interest card that is automatically scheduled to be paid off before the expiration of the 0% period.

Use the Two Card System

1) Use one card for new purchases and pay it off every month without fail.

If you don't think you have the will power to pay it off every month... use only a debit card attached to your checking account so you can't overspend. 

2) Get a second card that offers 0% Balance transfers carry the balance on this card and pay it off before the introductory period expires!

Not all cards are created equal!

The key to this system is locating a card that will allow 0% interest on balance transfers. Some cards only offer 0% on new purchases.

Fortunately, I have been able to locate  a couple of cards that fit the bill nicely. I've created links for a couple of my favorite 0% interest cards to make it easy for you.

For instance the Chase Platinum VISA® Card offers 12 months with 0% APR and may even offer a cash back bonus.

What if You can't get a O% Balance Transfer card?

If you can't get a card with 0% interest on balance transfers there is another way but it is a bit trickier. The basics are as follows:

Step 1- Buy your new purchases on a card that offers 0% on NEW Purchases.

Step 2-Use the money you would have paid for purchases like groceries, clothing, gas etc. to pay off your high interest card. Over time your 0% card balance will increase and your high interest card will decrease.

Specifically How this works

You can use a card like the AMEX^® Blue card for all your new purchases (like food and clothing). Your rate will be 0% on the new purchases. The trick is to pay the minimum on this card and use the money you would ordinarily have spent on these items to pay down the higher rate card. So in effect you get the balance transferred to the AMEX card but it may take several months to accomplish. If you spend $1400/month on Gas, Food, Clothing etc. it will take four months to move your balance from your current card to the AMEX card.

A simpler choice (but a bit more expensive) is to transfer your balance to the AMEX^® Blue card if your current rate is higher than 3.99% transfer rate. Of course you won't save as much but some savings are better than none. Of course if you are trying to cut expenses you want a card with No Annual Fee (all the cards mentioned here have no annual fee).

I sorted through the terms on dozens of cards and have created links to some cards that look like they might be helpful. I personally use all of these cards.

Use the Banks greed against them

Just Choose the one (or two) cards that are best for you and click the card for further details (there is no obligation). Take advantage of the free money to reduce your debt by paying it off before the introductory period expires.

Best Wishes for a debt free life.

Tim McMahon, editor