How I Got Out Of Credit Card Debt
Without Consolidation!

Tips and Tricks For Improving Your Finances

By: Michael Peterson
Editor: Access2Privacy.com

It was June of 2000 and I had hit the low point of my business life.  After 4 years of trying to get an Internet Marketing business off the ground I was deep in debt and at the end of my rope.  I had a business loan for $40,000 and 3 raked up credit cards that added up to another $32,000.  In addition, I had borrowed from former clients and family members.   I was spending the majority of my cash flow on interest and I was stressed out!

It was about this time that the interest rates on 2 of my credit cards went through the roof.  One went to 24.99% and the other went to 21.99% even though I hadn't missed any payments.  I assumed it was because all my cards were near their limit, but I later found out it was an error on my credit report that had caused the problem. It was at that time that I started doing research and learned first hand how to use the banks against each other to pay off my debt faster. 

It Was Time To Slash My Interest Costs.

The first thing I needed to do was try to minimize my credit card interest, those high rates were absolutely killing me.  I had been receiving 0% offers in the mail on almost a daily basis for years so I grabbed the Capital One application and applied for it over the phone.  She said even though it was a prequalified offer, they couldn't make an immediate decision and that I would receive more information in the mail within a few days.  That wasn't what I wanted to hear and about a week later a letter arrived confirming that I had been denied a card.  I couldn't even get a card at one of their sub prime rates, it was apparent that I was a sinking ship and the last thing I needed was another credit card.

It was at this point that I got a part time job and made some serious changes to bring my cash flow back in order.  With the extra money I focused on paying down the 24.99% interest rate card, which was less than $5000 so it took me about 7 months.   Just before I got it paid off, I received an offer in the mail from them for a balance transfer at 0% for 6 months or 4.99% fixed for the life of the loan.   I remember jumping for joy!  It was the first time I was ever excited to get something from a credit card company.  The offer was good for 60 days, so I hung onto it until I finished paying off the existing balance.  Otherwise, the high balance money will stay on the card and all your payments will go toward the 4.99% balance. 

Once I had the card completely paid off, I transferred $7000 from the next highest interest rate card (21.99%) over to the 4.99%.  That transaction instantly saved me $1190 per year, less a one time $50 balance transfer fee!  ( Isn't it amazing that the same institution that charged me 24.99% on my existing balances would give me a 4.99% loan? ).

I then had about $3000 left at the 21.99% interest rate, so that became the focus of my monthly payments.  About this time, my business started to take off so I quit my part time job and I began to feel that I was on the road to recovery.  I kept my expenses low and took my monthly free cash flow plus my $100 per month interest savings and apply both to paying off that second credit card.  It again took about 6 -7 months and just like the other credit card company, they sent me a balance transfer offer.  It wasn't a fixed rate like the other but it was 0% for 10 months.   I immediately used it to transfer $8500 from a third credit card (which was raked up to $18,000) that was charging me 18.99% so again this would save me interest charges of about $1345 over the course of 10 months less a $50 balance transfer fee.  Even after including the transfer fee this balance transfer would save me about $130 per month that could be applied to principal instead of interest.

After those two transactions I was applying about $225 per month or $2700 per year to paying down principal that had formerly been going for interest!   The third credit card company eventually noticed that I had made huge progress paying down that extremely high amount of debt and dropped my APR from 18.99% to 7.99%.

The funny thing is the first credit card is actually charging me 28.99% after all these years, but I have since replaced that one with a different card but kept the credit line open as a last resort!  I pray that I'm never so desperate that I have to use it!!  Apparently they raised the default rate from 24.99% to 28.99% and this automatically raised my rate even though that card should be closer 9.99% based on my current credit score.

Pay Off Debt Instead Of Consolidating!

Back in 2000 I didn't own a home, if I had I'm sure I would've used a debt consolidation loan against my home equity.  That's how I ended up with a $40,000 business loan....  spend, consolidate, spend, consolidate....

Not having any consolidation options was actually a blessing.  It woke me up to the fact that I was throwing away thousands of dollars per year on interest charges and that was money that should be going toward accumulating a net worth!

Credit Cards Are Very Useful Tool If Used Properly!

You might think that after going through this experience I would never use credit cards again, but that's not the case.  I still use these methods whenever I need to meet a short term cashflow problem or need to make a large purchase ( less than $10,000 ).  Once I got my credit re-established (raised my credit score to 777) and had a steady stream of credit card balance transfer offers I actually paid off my business loan and still carry my last remaining $7500 of debt on a Citibank Platinum card at 0% for the next 10 months!   That's something my banker would never have offered me!

I recommend that everyone have at least 3 credit cards from 3 different institutions with minimum limits of $5000.  That way if you ever get into a financial bind, you can balance transfer your way out of the hole.  If I had only one credit card with a large credit limit, I couldn't have used this approach.

If you have poor credit and don't have any major bank credit cards, you can use some of the poor credit options but you will never get a balance transfer offer from them at such low rates.   Just make sure you  check your credit report on a regular basis and use these credit score boosting techniques to get your score back in the prime range.

Keep Your Balances Low Compared To Your Available Credit!

Try to avoid using more than 30% or so of the credit you have available to you. Your credit score measures the difference between the credit available to you and what you’re actually using. The smaller your available credit gap becomes, the more it hurts your score. Lenders will worry that you’re becoming overextended and that you are reaching the end of your rope.  Believe me, they don't like that!