credit card balance transfers saved us

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Most everyone would agree the traps are endless. Everywhere you look in almost every facet of life something is out to get us. While that might sound paranoid it kind of is the truth – just try not to let it get the best of you. ‘The Spender’ found herself in this very position as it related to credit cards. No shame of admitting it. For those that haven’t gotten the specifics yet and are interested in the details head on over to this post where the situation is depicted at length.

You’ve dug a hole so now what?

I’m not sure at what point but I had an epiphany. In my daily routine of going through the mail (mostly junk or spam mailings) I stumbled across a targeted offer of 0% balance transfers for 12 months. It seemed pretty simple on the surface. Too simple in fact.

1) Submit new credit card application for pre-qualified offer
2) Open account
3) Transfer balance over from existing credit card
4) Pay 0% on the transferred balance for 12 months. After that the rate went astronomical

So I started doing the math. Where’s the catch? Well, there were two from my vantage point – and perhaps more. One, they are banking on the individual not to pay the balance transfer off in full. 12 months seems like such a long ways away, I can start next month. The next month comes and maybe a cheap vacation deal is out there so let’s take advantage of that because there are still 10 months left to pay. And this cycle continues. Before you know it 12 months has passed and maybe a small dent has been made on the debt.

The other potential hiccup is taking the new shiny credit card in hand with a nice credit line and starting to make charges without the intention of paying it off in full each month (which defeats the entire purpose of this exercise by the way), ultimately accruing a nice interest payment for the bank issuing the credit card.

What if I beat the credit card company at their own game?

After establishing the newly laid traps over the traps ‘The Spender’ already found herself in I determined we could be diligent and smart in chipping away at the debt mountain bearing down on us every day. Let’s beat the addiction with the addiction. I quickly tallied up the interest portion of the existing credit card payments and determined we could apply that towards the principal and virtually cut down the time it would have taken to pay off the credit cards in full by essentially decades. I say decades quite literally because by paying the minimum payment it could take like 17 years depending on the balance. Now there are credit card regulations that mandate a bank clearly depict the amount of time it will take to pay off the balance on the statement each month if simply paying the minimum payment.

We opened the first credit card and transferred the balance over that had the highest interest rate and paid as much as we could towards it each month with the intent of paying it off before the 12 months was up. Then we would repeat the process with the next one taking the full amount of what was being paid to the credit card that was just paid off and combining it with the amount that was being paid on our new target. Now we were paying off huge chunks without interest and feeling pretty good about ourselves. This process continued three or four times. The best part was not only was the debt margin shrinking but new healthy habits were being formed and ‘The Spender’ saw her credit score jump significantly. The more her credit score jumped the more exciting prequalified offers came.

The debt avalanche method coupled with 0% balance transfers were our saving grace. A large reason why we were able to accomplish what we did so fast without having massive salaries is because it is not what you earn but what you spend and if controlling what you spend enables you to save a large portion of your income (to pay off debt, build an emergency fund, save towards retirement or that house down payment or big ticket item) whatever goal you are chasing should result in success. Simply put, what we saved went towards the debt payoff.

 The ‘Holy Grail’ has been found

Some might argue credit cards are bad. I would agree if not used responsibly. Everything in moderation with good intent is not bad, however. Sometimes even thinking outside of the box is where the real magic is. Indeed there are traps out everywhere to get us, just don’t fall victim. We got lucky and the stars aligned. More or less we stumbled upon something that would kick start a new way of thinking.

Ultimately it has propelled us to a very solid financial state where FIRE is a real possibility. Trying new things and taking calculated risks is sometimes necessary in the pursuit of success. Today we still use credit cards in our arsenal of tools in the journey we are on. Excellent credit scores have enabled us to take advantage of very rich welcome offers that result in bonus miles or reward points as banks fight for our business and this helps fund the lifestyle we lead of travel and comfort with the numerous perks attached to individual cards but we can leave the sharing of these details for another day.