Get out of debt by using your credit card

By Sierra Black

Credit cards: the best friend and worst enemy of anyone trying to live on a budget. Your credit card is there when an unexpected bill comes up, and it can help you through a rough week when you don't quite have enough to cover groceries and pay for gas for your car. However, depending on how you use it, your credit card can also be your biggest downfall, enabling you to rack up large amounts of debt.

Managing money is hard. Especially when you're just starting out, you'll make mistakes. Having a credit card in your pocket can feel like a safety net when there's a gap between your income and your expenses.

Using credit cards to get into debt

There were plenty of weeks when I depended on my credit card to get me through to my next paycheck. Like many young Americans before and after me, I didn't always pay it off again when that paycheck came. Pretty soon, I was carrying chronic debt on all of my credit cards. A lot of it.

At that point, my helpful credit cards started to look more like enemies than friends. I was living beyond my means, and the credit cards that once helped me do it now ate up a big chunk of my income in interest payments every month. It was time for a change.

Using credit cards to get out of debt

I didn't start out by shredding all of my credit cards. Cutting them up feels great, but getting rid of credit isn't always the best way to resolve a credit problem.

It may sounds crazy, but one of the first things I did when I was ready to get out of debt was apply for a new credit card. Because I'd always paid my credit cards on time, I had a good credit score even though I was carrying a lot of debt. That meant that I was constantly being deluged with credit card offers.

I took advantage of the best zero percent balance transfer offer I got, and transferred my high-interest debt to it. That bought me 16 months of interest-free time to pay off my credit card debt. I was able to add the money I'd been paying in interest on each of three credit cards to my debt snowball, and pay it all off faster.

Warning: this approach will not work for everyone

If you have problems with compulsive shopping, excessive impulse buying or basic math skills, this is not the debt-destruction strategy for you.

Transferring your high-interest debt to a low-interest or zero interest card is a risky move. If you slip up and start charging things again, you could end up with two maxed out cards instead of one, a far worse place than where you started.

Steps to make it work

A zero interest balance transfer can be a ticket out of debt, if you know how to use it. Here are some steps to make it work for you:

• Be prepared: Don't just impulsively jump at the first good offer you get. Take a few months to track your spending and create a budget you can live with. You want to really know what you're spending and how before you start your debt snowball rolling.
• Be committed: Commit to taking on no new debt, and stop using credit cards for day-to-day purchases.
• Have a plan: Plan to pay off your debt, during the interest-free grace period on your new card if possible. Know in advance how much you can pay each month, and commit to doing it.
• Take it for a test drive: Spend three months living within your new spending plan, and putting a little money away in the bank. When you know you can do this, you'll know you can handle using a credit card as part of your debt-busting strategy.
• Read the fine print: before you accept a credit card offer, be sure you read the details carefully. Know what the introductory rate is, when it expires and what the rate will be after that. I got two near-identical offers yesterday for zero interest credit cards. One had a regular rate of 28 percent after the introductory period; the other's regular rate was 9 percent.
• Put your cards on ice: Once you've made the transfer, you need to stop using credit cards. Put your credit cards - yes, all of them, even the new zero interest credit card - in a bowl of water. Stick it in the freezer. They'll be there in an emergency, but they're out of arm's reach should temptation strike at the local shopping mall.

Not all offers are created equal

If you think zero interest credit cards can help you get out of debt, be sure to shop around. Not all balance transfer offers are created equal.

The key things you need to find out are:

• How long will the zero interest balance transfer period last?
• What will the interest rate be when it expires?
• Is there an up-front fee for making the balance transfer? If yes, what is it?
• What is the account limit?
• What are the penalties for a missed or late payment?
• Are there any other fees or special conditions?

Good luck on your way to becoming debt free!