First Person: I Have $15K in Credit Card Debt Interest-Free

Yahoo Contributor Network

Like many Americans my husband and I have credit card debt, but we don't pay interest anymore. When we bought our first home it took every penny we had, and as the cold Alaskan winter rolled in, we found ourselves with insufficient savings to cover the out-of-this-world utility costs. We had no choice but to utilize credit, and then more credit to bring our home to an energy efficient level. By the time all was said and done, we were sitting with 15k in credit card debt and where paying literally hundreds of dollars in interest. We had to do something.

The debt-free shuffle

The thing was, being mid-twenties with a mortgage and two cars which were financed meant one thing besides debt, it meant excellent credit. We got the idea to open several zero-interest period cards and slide all of our interest -charging debt to them, and then pay off any use on the interest paying cards within the grace period. This meant that extra couple hundred dollars we were paying in interest would actually be reducing our debt.

Utilizing a grace period

Many credit card users don't realize that basically every card has a grace period. This is a length of time a charge can remain on your card interest free. For most cards the grace period is the length of a billing period. For example, if you have an 18 percent interest card, charge $200, but pay it off before the billing cycle has been processed 29 days later, that $200 was an interest-free loan. Grace periods vary by card.

Finding zero-interest cards

The best thing we stumbled on to when we were working our debt-free shuffle was the Chase Slate card. This card, at least at the time this was written, offered 15 months interest-free and NO balance transfer fee. The majority of credit cards have a three to five percent transfer fee, which is still often less than the comparable interest for the number of months in an interest-free period, but does add cost to balance transfers. If you are able to obtain a Chase Slate card, and then pay off your balance before the 15 month interest-free period expires, you pay no extra fees. It's an entirely free loan, however, bear in mind, if you fail to pay off your balance, you'll be charged interest from the date of the transfer on the remaining balance. Be careful when sliding debt that you don't underestimate your ability to pay back a sum in the allotted time frame. Also watch out for annual fees. There are numerous cards with interest-free periods ranging from six to 18 months that won't charge you money just to keep the card. Www.comparecreditcards.com is an excellent reference for comparison.

The downside

Now all the may sound brilliant, even if it does have its risks and a requirement of a sufficient credit score to obtain new cards, but it does have a downside. Opening new accounts often reduces your credit score as does seeking new credit, but if you don't get sufficient cards to keep balances lower you'll also hurt your score because a card with above 33 percent credit use will often actually reduce your credit score as well. If you intend to attempt a debt-free shuffle, it's best you have no intent of needing a really great credit score anytime soon. Once, and if, you clear your debt and time passes on the opening of new accounts, your score will come back, but it will temporarily drop. For the idea to work, you also have to limit to eliminate new credit use or drastically increase your income.

*Note: This was written by a Yahoo! contributor. Do you have a personal finance story that you'd like to share? Sign up with the Yahoo! Contributor Network to start publishing your own finance articles.

More from this contributor:

How I Cut My Electric Bill in Half

I'll Never Use Automatic Bill Pay

I Budget My Family Like a Business

Rates

View Comments