debt debs

Personal Debt Wrangler – Had my money head in the sand – but no more!

The Evil and Grace of Low Rate Cash Advance Credit Cards

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We have gathered up quite a bit of available credit (like rolling tumbleweeds) in our debt journey (enough to hang our self with a rope, but lemme try to keep this post positive).

http://www.flickr.com/photos/denise_rowlands/4262433471/sizes/m/in/photolist-7uE5Yg-dgzXnu-4h6bUo-xSUbW-aWcDCx-y2CZX-6SGv-5zt5Jw-4h6c5A-7AhP2e-hQy1pm-3JMPg-ek6urh-b6dUNF-7Sf5oK-FRvA1-8cTe43-axko2Q-4aMjh2-5NyW8-46gqkN-fGBqUR-78Ww5k-5NwdpD-78WMg6-fT3vJw-99ryV-3jkc6s-4H9Mhv-vsdKy-5NAug5-5GZ7M-94nTab-3yq622-3yq5Hv-4h29zT-4h6cgC-bxM8LA-3cFbF8-87XJs2-881VMy-618VEp-xZ5vi-3JMPi-eMVTV1-x9jRV-5XbcqR-7HD3ch-7Hz7RR-7HD4hJ-7Hz72x/

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Ðeni (break) Denise Rowlands on flickr

Consequently we used to get a lot of telemarketing calls trying to get us to use these credit cards by transferring higher interest debt onto a card with a low balance transfer rate.

Apparently, while I had my head in the sand, the Irishman started to play along. Hence our debt story where we had amassed $250K of consumer debt up to D-day. (I kid you not, go read about it here).

So fast forward to March 2012, more affectionately known as D-day, I put my big girlie panties on and start wrangling this debt monster.  Strategy becomes my game.  Hey, I got nuthin’ else.

My Dad was always talking about this points card that paid him 5% cash on gas and grocery purchases.  He used to brag about getting a cheque every few months for 50 bucks.  Well, I’m not about to turn away free money for stuff I need to buy anyways.  The next time I was enticed with said card I bit.  I knew the 5% was only for a six month period, but since I was living day-to-day at that point, that was a long time.  Yep, like he said $50 cheques started rolling in every second month.

My first six months of how-to-get-out-of-debt-hell were rough but eventually I was able to uncurl myself from the ball of fetal positioning I had assumed.  That was around the time that the little cheques (which all went to debt repayment, aren’t you proud?) stopped coming in so frequently.  Time to start a new strategy, which I did but we’ll save that for when I have nothing else to write about another post.

So I stopped using that money-making card but they continued to tempt me with the allure of low rate cash balance transfers.  I bit again.  This time to pay off our truck loan of $12,000 which was at 5% interest.  We paid a 1% balance transfer fee and .99% interest, thereby saving 3% interest.  The catch was that we had to be sure to pay off the balance transfer within the six months of the low interest period, after which the rate would sky rocket to 18% of something ridiculous.  I had a plan to do this and come hell or high water, this is what we would do.

And we did.

That was so awesome when that debt was gone.  Not only had I saved the interest but I had done something highly creative (or so I like to think).

I’ve done it once again but this time I’ve put the cash advance against our Big mortgage (aka a $hitload of consumer debt).  Oh and the nice credit card company saw we were such good payers that they increased our limit to $25K.  Oh and I’m such a good negotiator that they waived the balance transfer fee of 1% and I’m paying only .99% interest.

Vertex42OK, so I’ve just gone and done the math, people, using the really cool calculators at VERTEX 42.

The results are shocking.

For less than $200 in interest charges that I will pay to my loan shark credit card for a balance transfer of $24,700 @ .99% interest rate, I will save the following on my consumer debt mortgage of $226K @ 2.79%:

  1. $22,192.38 in interest over the life of the mortgage
  2. Number of payments decreases from 652 (25.08 years) to 554 (21.31 years).

I do not make this up.

Caveats:

  • For this strategy to work, you absolutely, positively must be sure you can pay the full balance transfer by the date that the interest rate hikes (pretty please, do not take this point lightly… note to self put a disclaimer page on my blog)
  • I accomplish the point above by having my e-fund fairly well funded, so worst case is I take that money to pay the balance transfer if needed
  • Do not make the stupid mistake I did (* see below), which was have a (annual) recurring payment charged to the credit card.  You will pay interest on this and it screws up your savings by the complicated way that they apply the payments, even if you pay this amount in full.
  • I repeat, you must use this balance transfer credit card for only this!!  No other charges.  Full stop.

*We forgot that we had used the card last January when we were using it for other things to sign up for CAA.  Well this past Jan, our renewal was charged to the card.  Consequently, we have a bit more interest on our credit card.  I was bummed that my strategy was messed up.  Looking back, I should have called CAA right away and maybe I could have got it reversed and charged to our normal credit card.  Because it made me so grumpy I just wanted to not think about it.  I’m estimating the impact for this month was about $4 in interest, so no biggie, but then I still have 5 months to go, so I think this will have an impact for the remainder of the term.  It’s complicated how they apply the payments and calculate the interest on cards with diff rates.  Suffice it to say, if you use my strategy, don’t ever let any other charges go on that card!!!

There you have it folks!  What do you think?  I’m actually quite surprised that I cannot find anything on the web about this.  I think I’m brilliant, but if you think there are factors I haven’t considered or mistakes I’ve made, then please, I’m all ears.

This is a journey.  And we are all learning.

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Author: debt debs

I am a fifty-something wife, mother and new grandmother, who admits to having their “head in the sand” about their financial situation until amassing $247,500 worth of consumer debt for a total debt of $393,500. We've paid $121K in 2 years with four more years to go. Join my journey at debtdebs.com sharing ideas and motivation to all those coping with poor money management and bad debt decisions.

12 thoughts on “The Evil and Grace of Low Rate Cash Advance Credit Cards

  1. I think this can be a great strategy provided you’re committed to paying off the card in full before the introductory rate period ends. Just gotta be careful, that’s all, and it sounds like you’re doing a wonderful job of paying off the cards in time. Smart move!

    Liked by 1 person

    • I’m glad you agree it is a good strategy. I think so too. I’ve done the math and it seems very compelling so I’m wondering why I have not heard of any other people doing this. Have I missed something? Surely in this world of bright financial bloggers I am not alone!!! Cannot stress the caveat enough though. Ya gotta get it paid off before the deadline!

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  2. That’s incredible! There really is a strategy to saving money on debts and paying it off. It’s great you were able to do some manuevering and save yourself so much interest. Well done! The only thing is making sure you pay it off before the promo period expires… some people don’t do that and find themselves in a worse position. I’m glad to hear you weren’t one of them!

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  3. I did it, but I am letting it sit there past the introductory period. Why? Because it will only be about $3,000 left there and the interest rate is not retroactive. I am focusing on a higher interest rate card that is currently charging me interest. This is all part of a debt repayment process.

    If you’re trying to look this up online, check out debt leveraging. 🙂 there are some pretty sweet deals with mbna cards that I have known people to leverage pretty drastically because of the low (or no) rate, and the very low balance transfer fee.

    Liked by 1 person

    • Oh, is that what they call it? We’ve got the mbna card and that’s what we used.

      So let me see if I follow. You’ve got $3000 on a low rate card, but you will not be able to pay it before the end of the low rate, because you are paying other higher rate debt first. But what rate does the balance transfer go up to after the introductory period? I am assuming it will go higher than the rate of the current debt you are focusing on. Will you pay it immediately following the rate hike so as to limit your exposure?

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  4. I once got an offer to use the convenience check for a cash advance. They even gave me the 2% in cash rewards. I wrote the checks to myself, and went online to transfer the money back to my account as soon as the check cleared, Made $600. They never did that again.

    I had a 5% back card for home improvement stores. I had just purchases a new building that needed ~$40K in purchases. I made over $3500 on that card. They discontinued that category.

    But don’t sweat $250K. I owe $750K.

    Liked by 1 person

    • I won’t if you won’t!

      Good work on getting your rewards. Figures they would close some “loopholes” with too much upside.

      I am the lady in the IKEA commercial yelling “Start the car”….I feel like I have a dirty little secret but it’s totally above board.

      Thanks for your great examples!

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  5. I am thinking about opening a new credit card with a 0% introductory offer on balance transfers for 18 months! I need to reivew the details very closely first and then decide if its worth it. Thanks for sharing your experiences with this.

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  6. You are so welcome. Be careful, they will probably want to charge you 1% to do the balance transfer, but remember that is 1% on the full amount, all at one shot. So you need to do the math to compare what you would pay at your current rate on a declining balance, assuming you are currently paying down aggressively.

    I’m paying .99% interest on the declining balance each month, and that is all, because I got them to waive the transfer fee. You can usually negotiate with them. Just be prepared to walk away if you are not getting a good deal.

    Oh and don’t forget to never use the card for anything else. Don’t make the stupid mistake I did.

    Let us know how it all works out!

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  7. Pingback: Curve Balls – When You Are Hit With Unexpected Financial Events | debt debs

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