Credit Debt Finances & Money

Credit Cards as a Debt Reduction Tool

By Nickel

This is a guest post from Nickel, who writes about personal finance over at FiveCentNickel. And since that, combined with his four kids, don’t keep him sufficiently busy, he has recently launched yet another site, this time focused more narrowly on credit cards.

You’ve heard it before: you can’t borrow your way out of debt. But that doesn’t mean that you can’t use credit cards to your advantage when digging yourself out of a financial hole. The trick here is to apply for and use balance transfers that reduce your interest rate — ideally all of the way to zero.

How it works

Start by applying for one of the many 0% credit card offers that are out there floating around. These cards come with promo periods as long as 12-15 months, so you can save a ton of interest.

Once approved, 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. There are a number of options here — just pick whichever one works for you and get rolling. And don’t worry too much if you can’t get your balance completely paid off before the promo period ends — you can always rotate your debt to another card when the promo period runs out.

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 they can save you a ton, 0% balance transfers are not without their pitfalls. For example, most cards charge a transfer fee that can eat into your savings. While the fees are often capped 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 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.

So enter into this strategy with caution and consideration of your own habits. If you can’t control your credit card spending, then you’ll want to work on that problem before tackling your other debts.

About the author

Clever Dude


  • I know some people who are doing this very effectively and saving themselves a whole lot of interest. I also know people who use credit cards to invest – they use a card which has a 0% interest and draw cash on it which they then invest until the 0% period ends. They pay off the card and keep the interest that they have made.

  • That using Credit Cards with 0% interest to invest is VERY Dangerous game and one that I would not recommend at all. Investing, especially in the stock market, is a gamble no matter how you look at it and thus in my opinion should really only be done with real money. Good point on the purchases made on the same card after using the 0% offer, the credit cards company will take your payment and apply it to the 0% balance first so the purchase you just made sits there until that is completely paid off, that can ruin your strategy.

  • For the most part I agree with using a 0% card to help get out of debt. Instead of having a revolving line of credit (i.e. credit card) you can treat the balance to a 12 to 15 month payment plan like a term loan. As long as it is paid in full before the end of the last billing cycle, the savings speaks for itself and the debt is gone. The problem people run into with these 0% cards is not making a payment on time. That cancels the program and jacks the rate up 20-30% for one late payment. Only the organized and responsible people should attempt to do this. I always try to find the 0% balance transfer cards with no fee.

  • This seems like a good scenario, but the reason I haven’t transferred any of my higher interest rate balances is because I don’t want to end up amassing credit cards that would then be detrimental to cancel after they are paid off. Also, I have heard that there are some cards that end up being canceled or fees added due to non-use. Any ideas regarding the same?

  • Did you know that the first installment loan was offered by Arthur Morris in 1910? And that he received heavy criticism from his pears saying that lending money to working class people on credit was going to be a failure?

    And to think…our economy is built on credit today!

  • I am using this method right now, but I have heard it can be bad for your credit score to always be opening new cards.

    I only opened a new card because the offers that came in got better and better. I was even able to set up an automatic payment for the minimum so I don’t have to worry about missing one.

    I don’t plan to pay it off over the promotional period because we are throwing all our available money at a couple higher rate cards.

  • EQUIFAX credit is bad and i did not to any of this all i had lowe,s and peebles credit cards. And i paid them on time. Because i get month ssi and know what i can pay and what can not. so now i do not to get my credit i did not do this.

    • @Tammy, based on your comment, it sounds like you maybe bought non-essential items (at least from Peebles) above your budgeted income and you realized you couldn’t make the minimum payments. Now you have bad credit and can’t get another card? Do you need credit cards for buying non-essential items (new clothes, DVDs, iTunes, etc.) or to be able to survive?

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