This is another follow-up to Use A Credit Card For Cash Flow Improvement. And since I don’t want this blog to be All Credit Cards All The Time, it will probably be the last credit-card-as-cash-flow-improver for awhile.
Here’s what I said about starting with a “clean” card – one with a zero balance:
Next, make sure the balance on the account starts at zero. You can accomplish this in a number of ways: open a new account, use your line of credit (if you have one or can get one) to pay down the balance, transfer the balance from a higher interest card to a lower interest card, put off some other expenses to free up cash to pay down the balance (you’ll make up the cash flow in short order), etc.
There’s another way to get your current card(s) to a zero balance and save yourself a good bit of interest in the process – interest-free balance transfer.
You’ve probably seen the offers. Open a new account with XYZ Credit Card Company, transfer the balances from existing cards, and have the transferred amounts be interest-free for the next 9, 12, or more, months.
Here’s how to make it work for you:
- Identify one or more of your existing cards to use as “free float” cards.
- Transfer those balances onto the new card with the interest-free period.
- DO NOT charge anything new to the new card – it’s for the transferred balances only.
- Use the newly cleaned cards for the free float technique outlined in the original post linked to above.
- Use the interest free period on the new card to pay down the balance.
Doing it this way can save some real money and allow you to pay off your balance earlier.
A quick example. If you have a $10,000 balance on a credit card with an 18% interest rate, it would take 12 monthly payments of approximately $908 to pay down the balance to zero – $10,000 in principal and $900 in interest. With an interest free card, that same $908 monthly payment would pay off the balance in 11 months, saving $900 in interest.
So, next time one of those balance transfer offers come in the mail, consider it time to begin the process of getting interest free float and improving your cash flow.