This guest post is by Revanche who writes about personal finance at A Gai Shan Life. In fact, if you have have never read her blog, I suggest you go through it like a fine comb because she really has some interesting stories to tell about her family and personal finance. I also suggest you subscribe to her blog to get updated posts from her.

In what now seems like the Golden Days of Easy Credit in the early part of the ’00s (and isn’t that weird to say?), my parents faced an overwhelming mountain of credit card debt. It wasn’t just that the balance itself was enormous, but they had carried a balance for long enough that they couldn’t do more than keep up with a little more than the minimum payments. The interest was just hammering them, month after month, and there didn’t seem to be any way to get on top of the mess.

As a freshman in college, I’d just opened my first bank account and opened my first credit card to pay for school, paid with the proceeds from my first real job. [The Census didn’t really count as it was temporary.] I had begun reading financial forums and discovered amazing things about credit cards. Not only did you not pay interest when you paid your cards in full every month, which was easy as I only charged tuition and school supplies, you could earn reward points. I was all over that. And not only that, you could also apply for credit cards with a 0% interest balance transfer for up to 12 months fee-free. That caught my attention.

I applied for three cards, carefully using household income as per the form requested, and was approved for two of them with a decent amount of credit line on each. I sat down with my mom and worked out a plan where I would transfer $9000 of their credit card debt to these two cards. At payments of $750 per month, we could pay off $9000 of their debt within 12 months with all the money going directly to the principal and not a penny lost to interest!

It didn’t work out exactly as planned. Because there were hiccups in their income, I had to take over the payment plan (thankfully I had the opportunity to work enough overtime to supplement) and we did this again with two more card offers as soon as the balances on the existing cards were low enough. All told, we paid off at least $20,000 in credit card debt over the span of 20 months without losing ground to late payments, over-credit-limit fees, or interest.

After that was paid down, I continued to apply for balance transfer cards to make some money from the high interest savings accounts on the side, but stopped when the savings rates were too low and fees were instituted on balance transfers.

In today’s tightened credit environment, this strategy isn’t as cheap as it once was, but if one can secure a balance transfer card with a cap on the fee, and one is disciplined enough to stick to the savings plan, it could be a valuable tool in paying down debt. Again, the latter caveat is the most important: this plan only worked because I was absolutely determined to pay down their debt without spending a cent on interest, and because I had my own income to pick up where their income faltered. They basically had access to my credit and my income to implement my strategy; without both of those, they would have ended up paying interest on the entire 12-month term. As it was, they saved on compounding interest of more than 20% over the period of nearly two years.

As always, only use credit cards if you can do so responsibly!

This entry was posted on Saturday, March 13th, 2010 at 07:21 and is filed under Credit Card Tips. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.