Using 0% Balance Transfers to Dig Yourself Out of Debt

While it’s true that you can’t borrow your way out of debt, that doesn’t mean that you can’t use credit cards to help dig yourself out of a financial hole. The trick here is to apply for and use balance transfers to reduce your interest rate, ideally all the way to zero.

How it works

Start by applying for one of the many 0% balance transfer offers that are out there floating around. These cards come with promo periods as long as 12-15 months, so they can save you a ton of interest. After approval, simply transfer your higher rate debts to your new, lower rate card.

Next, get serious about paying down your balance before the promo period expires. If you can’t get your balance completely paid off before the promo period ends, you can always rotate your debt to a fresh 0% credit card offer. Even if you can’t find a suitable offer, you’ll have saved 12-15 months worth of interest payments, so you’ll be way ahead of the game.

One nice thing about this approach is that it’s not limited to credit card debt. Because many card issuers provide balance transfer checks, you can use this strategy to consolidate debts from a variety of sources, including car loans, home equity loans, and student loans.

The downside

While this strategy can save you a ton, it’s not without its pitfalls. For example, the days of the no fee 0% balance transfers are rapidly coming to an end. Nowadays, pretty much all of the 12-15 month offers have a balance transfer fee that can eat into your savings. While these fees often top out at $50-$75, sometimes they’re not capped, so be careful.

It’s also important to stop adding to your debts when using this strategy. Since most credit card issuers will preferentially apply your payments to the 0% portion of your balance, any new charges will incur finance charges until you get your balance down to zero. If you can’t control your credit card spending, then you’ll need to work on that problem before using this strategy.