Hey bulls! Today I’m going to be going over one of the methods I’ve used in the past to pay off my credit card balance without incurring any interest charges. I did this over the course of 12 months. In today’s world (2017), you can do this over the course of 21 months. Some of you may not agree with this method but let me tell you, it works great. It saves you from having to pay 15% and sometimes even 20% interest over the course of a year, depending on your credit score.
I consider this the millennial bull method. Not because I made it up, I just happened to see the opportunity and took advantage of it. I’m sure many others have done the same. I gave it that name because it is how a millennial bull should be thinking when trying to figure out solutions to be debt free. When you read and understand this method, you will realize why it makes the most sense for some individuals and why it won’t make sense for others. Obviously, this method is not for everyone. It’s for most of the people out there with high credit card debt. This method will save them hundreds of dollars and most likely thousands of dollars.
I’ve had many people say to me in the past how bad credit cards are and how you should never use them if you can avoid it. Especially if you have been unfortunate enough to build up large balances on your current credit cards. Maybe you’ve even maxed out a card or two.
Well here is my opinion:
Credit cards are not bad
Yea… I said it! I know some finance bloggers out there tell you how credit cards are bad and how you should stay away from them. Well I’m here to tell you the opposite. I’m here to tell you that credit cards are actually great, if you learn how to use them properly.
Also, if you happen to get yourself in some hot water and somehow managed to build up a high balance on your credit card that you can’t pay off within a reasonable amount of time (3 months or less), you are in luck. I have the perfect solution for you on how you can pay it off without incurring any more penalties/ fees/ interest from that credit card company.
The answer? … get another credit card. Yes, you heard that correctly. If you currently have a balance on your credit card that cannot be paid off within 3 months, you need to get a second credit card. This will allow you to minimize the amount of money that will be paid in fees/interest.
You may ask yourself,
why three months… what’s the logic behind that?
Well, the average interest rate on a credit card according to CreditCards.com is 15% (annualized). This means that if your credit card balance is $5,000 and your APR is 15%, you will be paying an additional $754 (15% of 5,000) in that year. This is assuming that you didn’t pay off your card or end up increasing your balance by continuing to use it.
If you did not pay off the $5,000 in three months, you would only get charged a 3.6% interest rate ($179 in total) during those three months.
If you don’t pay off your credit card in three months, you get charged 3.6%
Remember that interest rate as I continue to talk about opening up a second credit card account. This second credit card that I am talking about is a zero-interest rate, zero fee credit card. You heard that correctly, there are interest free credit cards out there.
In today’s credit card world, banks are trying to acquire new customers in many different ways. Some offer credit card points in order to do this, others offer no fees. A few offer no fees and no interest for 12-18 months. An even small subset of these credit cards offer 21 month of no fees and no interest.
These offers are to entice us to open new accounts. But… there is a catch with these zero fee, zero interest credit cards. After the zero-interest term expires, in 18 months for example, if you still hold a balance in that credit card account, on the 19th month, you will have to pay ALL the interest you have accumulated over that time period. However, if you pay off the credit card within those 18 months, you basically had an interest free credit card loan for 18 months.
I’m sure you are already seeing where I am going with this:
Open an interest free credit card account
Then you transfer your account balance on the old credit card (your interest-bearing credit card account) to the zero-interest credit card account. “How would I do this?” you may ask. Well, lucky for you, credit card companies make this easy. They providing you with the opportunity to transfer your existing balance over to the newly opened account.
The credit card companies do this by giving you a blank check that you can use to pay for anything you wish. You can write yourself any amount up to your credit card limit. Then you can go and buy a new car, put the money in your savings, pay off a loan etc.
Obviously buying a new car or putting the money into your savings is not a good idea because you will only be adding to your current outstanding debt. However, as mentioned before, you can use the check to pay off a loan. You can pay off the old loan that was currently accumulating interest.
Again, there is a catch.
Writing yourself a check with the credit card company will incur additional charges
That charge is usually 3%. So, when you use the feature that allows you to write yourself a check to pay off an older loan/ credit card debt, you will get charged a one-time rate of 3%.
Do you see where I’m going with this? That is why you can only benefit from this method if you have enough debt that can’t be paid off in three months. The rate you pay for writing yourself a check (3%) is less than the interest rate you would have paid if you continued to incur interest with your outstanding account (the 3.6% we discussed earlier).
Once you write yourself a check, you can then go ahead and close off that older account or you can leave it open. However, MAKE SURE YOU DO NOT CONTINUE TO CHARGE YOUR CREDIT CARD! Just because you now have an interest free loan, doesn’t mean you can go ahead and put more charges on that card or put more charges on the older card. If you do that, you are now continuing the poor millennial life style.
Is it legal?
This method is perfectly legal! In fact, the credit card companies encourage you to do this by allowing you to write yourself a check. They do this so that you can pay off another card or loan. They actually tell you to do this in the letter that contains the self-signed checks they send you. Furthermore, they will allow you to do this multiple times during the 18 months.
Obviously, they don’t do this from the goodness of their hearts. The credit card companies aren’t doing this to help you. They are hoping that you end up being carried away with the fact that you have 18 months of zero interest. They want you to keep using the card, spending and racking up that debt so that when month 19 hits, they can bang you for all the interest of month 1 to month 18.
So, you take advantage of this by doing what I explained above. You also create a realistic payment plan. You make sure that you cut out things that you don’t need to be doing. Things like going out to expensive dinners, buying 2 Starbucks coffees a day, going to the movies every other weekend. I mean you can do all that, but remember, any money spent not paying off your loan is money wasted.
Once the interest free duration ends, you WILL have to pay for the whole grace period you were originally given of no interest. Creating a payment plan is the most important part of all this!
If you are not a disciplined individual, if you cannot control your spending, this method will not help you. In fact, it could make you worse off depending on your level of responsibility. However, if you are the millennial bull type… then this method is for you. Make sure the interest free card is the longest length possible. Right now the longest length for an interest free period is 21 months. Give yourself plenty of time to pay off the debt.
Just to recap, here are the steps:
1. Open a 21-month interest free, zero fee credit card account
2. Pay off old credit card balance by writing a check from the interest free account (you will pay a 3% fee)
3. Close old credit card account
4. Do not put additional charges on interest free credit card account
5. Create a payment plan to pay off the interest free credit card in 12-15 months (if your grace period is 18 months, you should plan to have the card payed off 3 months before the grace period ends)
That’s it guys! It’s that simple. If you enjoyed this read, check out my post on “How To Avoid Taking A Car Loan“. It also gives great tips on how you can save a lot of money simply by changing your home address… and it’s legal!
The shortcut to financial freedom is hard work, determination and perseverance!