The Fastest Way to Pay Off Your Credit Card Debt…For Real

It’s the beginning of the year and I’m overwhelmed by the number of articles telling people the fastest way to pay off their credit card debt is to switch over to a zero percent card and then pay it off before the zero percent runs out.

Are these people idiots?  There are a few things wrong with that scenario and they make quite a bit of difference.

#1  When you get a new credit card with zero percent interest and you transfer the balance from a higher interest card to that new card, you are going to pay a balance transfer fee. 

It is not free to transfer card balances from one card to another.  The fee is usually around 3% and almost always has a set minimum.  You better make certain that your introductory rate comes with a $0 introduction transfer fee, too.  If you don’t see one, call and ask.  Otherwise, a card balance of $8,500 could cost you another $255 just to transfer.

#2  Paying off the zero percent card first is foolish. 

To save the maximum amount of interest, you want to be paying off your highest interest card first, not the new zero percent interest card.  You should set up the auto-payment on every card to pay the minimum payment each month while paying the maximum amount you can towards your highest interest card.  See my article about how to create a debt snowball.  It will teach you how to pay off your debt the quickest way possible while saving the most amount of money in paid interest.

#3  Just applying for another card is going to affect your credit.

If you are looking to buy a home, refinance your current mortgage, or buy a car in the near future, you do not want to negatively affect your credit.  Plus, a low credit score affects more than your loan rates.  A low credit score raises the price of your car insurance and many other things.  Working on your debt is followed closely by working on your credit score, so don’t go crazy applying for credit card loans.  Know your score before you apply.  Almost all credit card companies give you a free look at your score online now.  Then, when you see a card you wish to apply for, find out what their minimum score requirements are.  That way you don’t waste time applying if you know you don’t qualify and get your score dinged for no reason.

#4  Getting a new card may put you even deeper in debt.

The truth is that most people who consolidate loans, and that’s what this is, a type of “debt consolidation,” just go on spending as they did before and end up in a deeper hole down the road.  If you have balances left on your credit cards at the end of the month, you are in debt.  It’s a fact.  You spent money you did not have on things you have not yet earned.  If you are driving around in a car that you did not pay cash for, it is not really your car.  You haven’t earned it yet.  However, Americans don’t think that way.  They want to show off their new boots, new phone, or a new car.  Look at me!  I’m doing alright.  Wrong.  Imagine a red negative number hovering over every purchase made with credit.  Most houses in America would have a red negative six figures floating above them.  Cars would have an average of -$30.000.  Your phone would probably have a -$500 to -$800 if you have an iPhone.  Debt, debt, debt everywhere.  We don’t seem to know how to stop ourselves.

So What Can We Do?

The trouble with our society is no one has ever really taught us how to live within our income.  It’s been several generations since the debt cycle started and there’s no end in sight.  The majority of us spend more than we make.  We do that with credit.  Anything you can’t pay cash for, you cannot afford but we do it every day.  What we really need to be doing is teaching ourselves to be smarter with our money and not to spend it until we have made it. 

Chances are, that zero balance on the card you paid off with the new card will have a new balance in less than a few months if you choose to consolidate your loans.  It may be sad but it’s statistically true.  You’re more likely to just go on spending because you never fixed the real problem: spending more than you make.

BEST CASE SCENARIO

Let’s say you do call and that new 0% interest card has a $0 introduction balance transfer fee for 60 days.  What should you do?

If you did get the new card, you should max out the balance of that new 0% interest card by paying off your highest interest cards first, in order.

Next, you cut up all your cards so you can’t use them.  That’s scary, I know, but if you are serious about getting out of debt, you’ll do it.  I tell my clients that until they get a 3-month emergency fund saved up, they can freeze one card in an ice tray for emergencies.  Otherwise, all the cards must go.  They can have their cards back when they can trust themselves to spend wisely with discretion and control.

I don’t suggest you cancel your cards, either.  You should want to maintain and improve your credit score.  A canceled card does the opposite.  The only time you should cancel your cards is if you simply cannot control yourself or your spending.  If that’s the case, canceling the cards may be the way to go.

Finally, implement a Debt Reduction Snowball by paying as much as you can of your highest interest card first, followed by rolling each payment into the next until they are all paid off.

Remember, if you keep charging on your cards, you are shooting yourself in the foot.  The entire purpose is to get debt-free.  Stop your spending.  Have a plan and stick to the plan.   

Now go and grow! 

Michelle R Russell

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