How to Deal With Paying Off Massive Credit Card Balances

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So, back when I was clawing my way out of debt, I got my debt snowball rolling by paying off a few small debts, such as my computer loan to Dell, and my Bally Total Fitness Membership. [Incidentally, those two debts are great examples of what Dave Ramsey calls "stupid tax," a concept I'll delve into later.] After a month or so, I had knocked out what was left of these small debts and I was ready to start dealing with the four credit cards I had. All of these credit cards were maxed out, all of them had different terms and interest rates, and they had balances ranging from $1,000 all the way up to $25,000. Gulp.

Suddenly, the debt snowball that had started out so promisingly was looking a lot more intimidating. It looked like I’d be on this step for quite a while. I knew that the standard debt snowball rules called for dealing with the debts smallest to largest, but even the smallest balance was likely to take me a while to pay off, and the thought of that $25,000.00 balance just sitting there, treading water with minimum payments, was killing me. So I started thinking.

I decided that, since I was in this mess already, I might as well try to use the system to my advantage. I was getting balance transfer offers for lower percentages, and new credit card applications all the time. Maybe I should consolidate? Or surf the balance? Some strategies might work, but others not–getting a consolidation loan from the bank, for example, was not going to happen. So here are some of the things I did, maybe some of these strategies will work for you, too.

Negotiate Lower Interest Rates Directly with the Credit Card Companies.
The first thing I did was try to get better interest rates. All of my cards were over 15%, I believe, at the time of my debt crisis, and all of them were maxed out. Oh yeah. It was not a pretty sight. And though I had always made my payments on time, I rarely paid much more than the minimum payment, and they basically knew they had me. But I called them up anyway, and tried to get them to lower the rate. The first time I called, this didn’t work. They kept saying, “that’s the lowest rate we can offer on that card.” It was very discouraging.

But the next time I called I was smarter. The first thing I did was to ask for a supervisor, because usually the person on the phone is not authorized to make changes on the account. When I spoke to the supervisor, I got them to waive some fees that had accrued for over the credit limit penalty–yet another way they get you–you max out your card, and then the interest accrues and so it goes over the credit limit–but THEY’RE the ones who let you charge! And then, they tack on a fee because you’re over the credit limit, which pushes you over the limit again, and then you get another fee! What’s the catch? Catch-22!

So yeah, let’s not mince words: credit card companies are a bunch of scumbags. Still, at least I got them to waive some of their ratfuck fees. This helped me out of the crazy fee cycle, but did not fix the interest rate problem. The story with that was the same: that card cannot go lower–BUT, the good news is that the supervisor told me I qualified for another card that had an 11% rate, which yeah–still not good, but at this point, I was taking what I could get. It all seems like a bureaucratic mess, I know, but you’ve got to do what you can do. So this way, I got another card, and transferred part of the balance to a lower rate.

Threaten to “Surf” Balances
Another tactic to use when you’re dealing with uncooperative loan sharks credit card companies is to threaten to transfer your balance to another company. Sometimes, the company will be concerned that they’ll lose all the money in interest you’ve been paying them, particularly if you are good about making on-time payments, so they will try to keep you by offering a lower interest rate. As is the case with all of these tips, it might work some places, but not others. You never know unless you try.

What you might think is that you don’t have the ability to “surf” your balances because all of your cards are maxed out. This is not necessarily the case. Sometimes you can get another card without them even checking your credit–oh yeah, it’s true. You know all of those applications you get in the mail? They only check like one out of 3 of them or so, so even if you are “fully leveraged,” that doesn’t mean you won’t be able to balance-surf. Credit card companies know this, which is why the balance surf threat works. They might give you a better rate, they might give you another card. See what you can negotiate.

Actually transfer the balances to lower percentage rate deals.
You have to be careful with this one, because a lot of those 0% for 12 month deals have fine print terms with which to contend. But if you figure out the fee for the transfer (usually it’s a percentage of the balance), and look at how much interest you will save over those 12 months, then it is often worth it. My rules for these transfers was to keep the balances low enough so that I could pay off the amount transferred before it went up to a higher rate after the teaser period. Also, I always kept the payments the same size in the snowball as if I had never transferred the money, that way I was not backtracking just because they allowed a lower payment.

Be wary of debt consolidation loans, particularly when they are offered by companies that only do debt consolidations.
In theory, there is nothing wrong with debt consolidation. It can often help you get out of debt faster, if you know what you are doing and get a better interest rate than your original loan. However, you must always remember that the people offering you the consolidation loan are trying to make money, too. Make sure you are not taking a consolidation loan for more than what you owe on credit cards–that is the same as charging more! Also, and this is the most common mistake–make sure you continue to pay off the same amount as you would if the debts were still in the snowball. Just because you have negotiated a new debt, even if it is with better terms, does not mean you want to stay in debt longer! Make sure your snowball keeps turning at the same rate as before the consolidation loan, if not faster!

Make payments on credit cards immediately upon receiving “windfall money,” regardless of how much or how little it is.
One thing I got in the habit of doing was to make tons of payments on my credit cards each month. Every time there was some extra money in my account–if I returned something, or if I got a little more on my paycheck that month, or if I got an Amazon payment, whatever, I would *immediately* send that $8.34 (or whatever) to MBNA or whomever. You would think this would not make much of a difference, but the thing is that every little bit is subject to compound interest, so that one or two days of having $8.34 less on your balance can make hundreds or thousands of dollars of difference later down the road. Another thing is, when you know there’s extra in your account, you’re more likely to spend it. So get rid of it! Get in the habit of checking your balance constantly. Always be thinking of what you can do to shrink it. You’ll be surprised at how much you come up with when you focus.

What about you guys? Do you have any strategies from the trenches to share?

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