Some say the first rule in personal finance is to pay off credit card debt fully every month. Well, I disagree. With a caveat, of course. I have one, and only one reason why I don’t fully pay off credit card debt every month.

And I do it without incurring credit card debt with ghastly interest rates. Let me tell you my hack on how I do just that.

First, let me start off by saying I absolutely hate accruing interest. Luckily (at least as lucky as a girl in six-figure student debt can be), I don’t have any credit card debt. Why is that good?

Because unlike my student debt, the highest of which charge me 6.8% interest rate, interest rates for credit cards can go upwards of 20%. So why am I advocating not only to get a credit card but also to not pay it off?

** As a disclaimer, I am not sponsored by any credit card companies. I do have some referral links for the credit cards I own and recommend that will be at no additional cost to you if you decide to apply.**

It started in 2017 when my friend’s clear plastic credit card caught my attention. It was an interesting design and she showed me her American Express Blue Cash Everyday credit card.

At the time, I had 2 credit cards that I was fully paying off every month. They both had low credit limit so I had been debating between requesting for a credit line increase or applying for a new credit card.

I proceeded to ask my friend what the perks of her cards were and why she chose it. She told me the basics: no annual fee (which is what I always go for in a credit card), 3% cashback on groceries, 2% on gas, and 1% on everything else.

I thought it was pretty good. But she told me that none of these were the reasons she decided to get the card.

Her sole reason for applying for this card was the 0% introductory APR for the first 12 months starting from when you get the card.




As someone who has always been terrified of credit card debt and therefore always pays off her credit card balance fully every month, I never cared to look into 0% APR promotions. I just knew that if I paid off my credit card debt every month I wouldn’t have to pay interest.

So I asked her what she meant and did my own research on what a 0% introductory APR is and realized what I can do to take advantage of it. So here’s what I found out.

Credit card companies often offer incentives to get you to apply for a credit card with them. Cashback after you spend a certain amount, travel mileage for every dollar spent, and 0% APR (annual percentage rate) for a certain period are the most common incentives.

All these are very good reasons to apply for a new credit card, but out of these three offers, the last offer is the only reason I would apply for a card without paying off the balance fully every month. Because let’s face it, credit card APRs go upwards of 20%!

There’s really no good reason why you should keep a balance unless interest isn’t being charged.

 

How I Take Advantage of 0% APR Offers?

Credit card companies often offer 0% APR for a certain period (usually a year) when you first apply and get approved for the credit card. So what exactly does this mean? FREE loan for a year!

Who wouldn’t want a free loan right? Well, if used correctly, that is what a 0% APR credit card gives you, a free loan for a set amount of time.

During that free loan period, you can use the extra cash to make additional payments to chip away at your other loans that ARE accruing interest. It may be in the form of student loans, car loans, or other credit card debt.

In my case, student loan was my focus.

My first 0% APR credit card ended up being the American Express card that my friend recommended me. I applied for it and was approved about 2 months before I finished grad school when I was making a measly $500 per month working part time 8 hours a week.

I had extra expenses that I was anticipating that year, such as payments for my graduation ceremony and moving expenses to ship my car and belongings back to my home state after graduation. My plan was to charge my expenses on the card and only pay the minimum balance until I was able to work full time after graduation and pay the balance off.




I could have paid those extra expenses off way before the end of the 0% APR promotion once I started getting full-time paychecks.

However, once I started my student loan payments, I realized that if I delayed paying off my credit card debt that wasn’t incurring any interest and use the money instead to make extra payments to my student loans that were accruing almost $700 in interest per month, I would be better off.

 

Did the Plan Work?

Yes, the plan worked. I was able to charge my everyday expenses to my card so that with the exception of rent and health insurance, I was able to allocate most of my paycheck to my student loan. I only paid the minimum payments to my credit card every month during this time.

It helped that I had a good enough credit score that I managed to get $10,000 in credit line on my credit card. I expect this plan would be harder to implement if you were limited to only $500 or $1000 credit line as I was on my first credit card.

Even though $10,000 credit line seemed a lot –and it was a far higher number than I had expected to get based on my previous credit limits– $10,000 was still not going to cover everyday expenses for a whole year.

So, every couple of months, I would pay off the balance before cycling back to only paying minimum payments.

The Slippery Slope

Now, like I said before, this plan completely worked for me. Since then, my 0% APR promotion period has ended and before this promotion ended I made sure to pay off my full balance so I never accrued any credit card interest during this 1 year period.

So who do I think this plan can work for? If you are in a similar position as me, have student loans or car loans that you want to make extra payments to for a year, this would be a good plan to follow.  

If you already have high credit card debt on a card that is accruing interest, a balance transfer to a 0% introductory APR may help you avoid paying high interest but usually comes with a transfer fee.

However, I have to be honest. this is not for everyone. For example, if you have a history of being in credit card debt, have finally paid it off and now is paying off your credit card balance fully every month, I would have high reservations about getting into another credit card debt.  

The saving you may gain is not worth the risk of going back into credit card debt.

 

Lessons Learned

I was able to contribute $24,200 to my student loan in 7 months from July 2017 to February 2018 and I attribute much of that progress to early payments I was able to make when I was able to put most of my everyday expenses to my credit card.

It allowed me to make more principal payments rather than having most of my payments go towards accrued interest.

I consider this method such a success that I have already applied and been approved for my next 0% APR credit card, a Chase Freedom Unlimited with 0% Introductory APR for 15 months. However, as I continue to perfect this method, there are some things that I learned from my mistakes.




The biggest mistake (and that has since been fixed) is that my credit score slipped by 40 points as I started accruing more credit card debt because my credit utilization ratio went upwards of the 30% recommendation.

Credit utilization is another topic all on its own but the gist of it is that it is one of the criteria that is taken into consideration when it comes to your credit score. Credit utilization greater than 30% generally hurts your score.

I mentioned before I would cycle between paying off the full balance on the card and only paying minimum payments while in the introductory period.

I only started doing this after I realized my credit score was tanking and since then I made sure to make extra payments to my credit card everytime my balance gets close to the 30% utilization ratio.

The saving grace in this debacle was that it was an easy fix. As soon as I made payments to my credit card to lower my utilization ratio, my credit score increased almost instantly. My credit score is now higher than what it was a year ago when I first received this card.

In actuality, I am in a better position now that I am on my fourth credit card because now I have a higher overall credit card limit combining all 3 of my previous cards with my new Chase card when before I only had the credit limit of 3 cards.

And, by showing that I am able to pay off my 3rd credit card fully, Chase has actually given me my highest credit limit yet. So you can say it’s a double jackpot.

 

Steps to Take to Successfully Use this Method

All in all, I am absolutely a fan of this method. After all, I don’t know anyone who wouldn’t be a fan of a free loan. However, this free loan only works if you can promise yourself to pay off your credit card debt at the end of your 0% APR promotion.

You can tell I am a fan because I am doing this all over again with a new card, but I am making sure I am doing everything completely right this time. So here are the 3 steps I am taking to ensure my absolute success on my next 0% APR credit card.

1. Make sure to NEVER skip minimum payments every month (some credit cards will terminate the 0% APR promotion early for any missing payments)
2. Make sure to cycle between minimum payments and extra payments to keep utilization ratio <30%
3. Make a plan at least 3 months before the end of 0% APR promotion to save up and ensure that full credit card balance will be paid off before promotion period ends.

I sincerely believe there is no better opportunity than this to get a FREE loan so I absolutely recommend using this method if you are looking to make extra payments elsewhere. My only last advice: take advantage of it and use it, but use it wisely.