On the other hand, I have used 0% balance transfers to help get seemingly out of control debt under control. It works, but you have to stay focused with pit-bull intensity for the duration of paying back the transfer, and it’s still a gamble. Of course, it’s a gamble you were making anyway by having the debt at a higher interest. You are still playing a game, but if you stay committed to paying it off within the timeframe of the 0% interest it can work out.

What I’ve done, successfully, is followed Dave Ramsey’s method, except that I’ve in the past transferred the balance of the debt I’m snowballing to a 0% interest card, and then knocked it out within 6-8 months instead of the alloted 12. It helped give me a psychological edge knowing that I was risking losing the 0% interest the longer I had it. However, I’ve only done that a few times and not in all instances where I’ve snowballed, and you have to weigh the transaction costs involved.

I’ve also taken advantage of offers for low fixed rate interest cards with no time limit for the balance transfer. (like 2-3% when they were at that level, lately it’s been 6-7% and it’s not worth it to me at that rate.) I moved a chunk of cc debt onto one of those offers around the same time as I moved a chunk onto 0% offers, just to escape the high interest rate trap while I was snowballing a different cc.

But again — you have to keep in mind that this can be a trap — you have to stay focused or its really easy to just tread water if not get right back into debt on another card, only to find you still have a huge chunk of debt lingering.

I know DR wouldn’t approve, but it DID give me traction on the debt to move it around like this. Other than this, I’ve very closely followed DR’s plan and it really does work.

I am not, however, fond of the debt consolidation companies. I think you have to read their fine print very carefully, and I’ve heard too many horror stories about people thinking their bills are getting paid only to find out their situation has become worse through mismanagement. I looked at utilizing the credit card company offers as my own, self-controlled exercise in “debt consolidation”.

Debt consolidation services can help you negotiate lower interest rates and lower total minimum payments. Of course you should pay as much as you can each month anyway, but having a lower minimum gives you some breathing room in that emergency everybody’s worried about, and makes it easier to build that emergency fund at the same time, if that’s what you decide to do.

Debt snowballs are well and good to a point, but when the debt reaches a certain point, consolidation can be a lifesaver.

You say that the new card will be 8% after the 12 months, so we’ll just work with that number for now.

Since 8% < 15%, it would be a no brainer to transfer all the debt from the higher card, to the lower card (and probably shuck the higher one in the shredder and get that thing canceled once its paid off… (if you have too many revolving credit lines it impacts your credit rating negativly, so don’t keep it around, because you’re not going to want to use it)

So, in the worst case scenerio, you go the 12 months and don’t pay off a penny of the debt, but you’ve (nearly) halved the interest payments you’re gonna have to make by shifting it to the new card. The 0% you pay for the 12 months is just icing on the cake.

It makes no sense to put money into savings when the interest you owe is greater then the interest you’d make in the investment. (like you’ve heard a dozen times here already, you can always use that credit card for your emergency fund if you have to). Emergency funds are only useful as a means of preventing the necessity borrowing money (once you’re debt free), and (in the case of something like a savings account) is there to draw on in the emergency (as opposed to, say, investments in mutual funds, or real estate) since the savings account is a liquid asset you can withdraw immediately, and for which you will be sure of its future value.

Randall

1) If moving debt to a 0% card, is it better to apply for the card with all the balance transfers on the application?

2) What about minimum payments? Isn’t it likely you’ll be paying more per month on the new card?

Based on what I’m reading here, it looks like the consensus is for me to take the 0% loan and put it toward credit card debt (or, more accurately, shift the debt around). I’ll be slowly building the emergency fund using money that I earn, not borrow. I think Lazy Man and Money (#21) said it best: “If you save it all for an emergency and don’t have one, then you are wasting money by having to pay the high interest from the credit card company.”

One thing I didn’t mention in my original post that perhaps I should have is that while the CitiBank card is at 0% for 12 months, after that 12 months the interest rate is at least 8% lower than any of my other cards. So, unless they pull a bait-and-switch (like Chase did), in 12 months I’ll be better off even if I don’t do anything to reduce the debt. Of course, I will be working toward zero balances on all of my accounts during that time, so I expect to be much better off this time next year.

Also, in the time since I sent J.D. this question, I got a promotion at work(!) which will come with a salary increase that should further expedite my journey out of debt. (And before anyone says otherwise, let me say that any difference in monthly income will NOT go to luxury expenses! I’ve learned my lesson; it only took me 5-6 years of poor choices.)

Thanks again to everyone who commented! You all posted some great advice.

I would also make the case that hindsight is 20/20. Since you already recognize that not having an emergency fund got you into this mess, you know having one will prevent future messes. I recommend getting $1,000 built up as an emergency fund and cutting up all your cards, then paying them off with a snowball method. Dave Ramsey is right on with this. No one needs credit cards, for emergencies or otherwise. Having a card is not the same as having good credit. Don’t believe the hype. Best wishes in your efforts!

Similarly, it has become necessary to understand the overall distribution of the credit score. The following articles: http://www.myfico.com/Downloads/Brochures.aspx would certainly assist anyone who is interested to move up the credit rankings. You may cover this as a new post altogether. And keep up the good work!

If an emergency comes up you have 2 choices. Use your EF or use the extra $ in your debt snowball to cover the emergency. If you use the EF though make sure that you replenish it to $1000 before continuing on with your snowball. Good luck! As you can probably tell I am a huge Dave Ramsey fan.

Net worth = $8167-$15764-$10000=-$17597.

but no way should you create an emergency fund with borrowed money. the long term rates are not in your favor.

if you really feel the need for the emergency fund, then take $50-100 from you paycheck monthly instead of using that $50-100 to pay down debt. that’s the smarter and safer way to go.

1) If you pay off the credit cards and have an emergency, you can always add back to the credit cards - a situation that puts you no worse off than you are.

2) If you pay off the credit cards and don’t have an emergency, you make out way ahead - you’ll have a year of no credit card interest and that might get you completely out of it.

3) If you save it all for an emergency and don’t have one, then you are wasting money by having to pay the high interest from the credit card company.

4) If you save it all for an emergency and do have one, you are pretty much where you started, no gain on the credit card debt.

So in 1+2) (paying off the credit cards) you have a chance of coming out ahead - a good chance I’d say if you can avoid a true emergency.

And in case 3+4) if you save for an emergency, the best you can really hope for is to break even.

* Pay yourself first - skim 5-15% off the top of your check, and auto-transfer it away to an e-fund savings account. The psychology of this is amazing - if you never “see” it, your mind doesn’t think about spending it.

* Whatever is left on your check, use to pay your fixed expenses (rent/mortgage, utilities, etc), and then pay off your remaining credit cards, starting with the highest-rates first, and eventually working your way down to the 0% card.

My reasoning here is simple — build up your efund “behind the scenes” (with some kind of auto transfers), and use as much as you can every month to pay off your credit cards.

On the flip side of things — see what you can do about reducing expenses while you are paying off debt. Live without cable/internet for a while? Walk/bike instead of drive to save money on gas? Buy bulk groceries and/or fresh foods instead of packaged foods or eating out. Any extra money you save here will pay big dividends if you can pay off debt that’s costing you interest!

For years we have not had one b/c on paper it makes more sense to pay down debt than to save b/c of interest. It isn’t working b/c as many commenters mentioned our credit cards became our emergency fund. We pay down and pay down and wham have to put a big charge on.

I wouldn’t use borrowed money for the fund though. For the last few months we have had $25 automatically taken out of our checking. It isn’t much but our budget is tight.When it is taken out automatically you don’t seem to miss it. We were also given a nice surprise sum at Christmas that will be going in the savings.

Of course, when the intro rate ends, he’d better have a way to pay off the money he put into the emergency fund… Which in that case, I do see your point.

After the intro offer ends, I’d stop putting money into the emergency fund and pay down all the debt. Of course, I’m not taking my own advice here. It’s very hard to put it all into practice. But aggressive debt payoff really is best.

HOWEVER — and this is important — I think that Ben should be working to establish an emergency fund in the meanwhile. A credit card is not an emergency fund.

I agree with Mike–I wouldn’t take it. Get a second job or cut your spending hard to get a $1000 emergency fund while paying the minimums, and then go crazy on the debt, knocking it out smallest to largest. (Check out Dave Ramsey’s snowball method for a more thorough explanation).

Only then would I build up a three to six month emergency fund.

I would also NOT keep the credit card. Obviously you are having a problem with credit in the first place–why would you get another card or line of credit? Cut up this card and close the account, and actually pay off the debt you already have instead of moving it around. I wouldn’t keep the card around even for emergencies, because if you have an emergency fund, you don’t NEED a credit card for emergencies.

If an emergency comes up, why not just just use the free, 0% credit card to make the purchases?

The cash is earning 6% while the credit card is charging a rate that is (much?) higher. The worst case scenario is that the debt only gets paid down a little since there is an emergency that happens in the next year.

Then he’ll just have to roll the debt to another 0% card until he can pay that off. It looks as if the post’er is earning more than he spends. It is just a matter of time before the debt is paid off. The more of it that gets paid off, the more space he has to breathe. Maybe he can set aside some of the extra money he saves in INTEREST, and put it in the emergency fund.

A lump sum reduction in debt right now will save him hundreds or maybe thousands depending on the debt size, over the course of the debt period.

Just because it’s %0 interest doesn’t mean it isn’t debt.

I’d scrape around for other sources of income or savings to supplement both efforts. As tempting as it is to pull cash out of the new 0% card, resist. (And it goes without saying, don’t charge anything on it or the old cards, either.)

I don’t have any cc debt and my true efund is good, but my short term accounts (taxes, deductibles, etc) are a little lean, as I raided them for some household repairs and the semi-annual property tax bite was deeper than budgeted. It IS tempting to consider that a ‘emergency’, but hopefully some belt tightening for the next three or four months will take care of it.

Think about what would truly get you in a bind, and make some provisons. For instance, go ahead and find a cheap mechanic in case you have car trouble. Prepare for anything that could keep you from working and paying the debt, and keep at it for a while!

Good luck paying off the debt! Glad to hear that you’ve got some options and things are looking positive

1. The work required to establish the fund will be a deterrent to spending it frivolously. Credit cards do not have any work and so in turn have no deterrant.

2. An emergency fund is your buffer between Murphy’s law and sworn-off credit. To get out of credit, you have to stop using it.

3. It’s an easy success. This is encouraging.