My partner and I have been dealing with a good chunk of credit card debt for a while we managed to come up with a trick to avoid paying some of the interest. We dubbed this little trick 'debt cycling', which I will explain why later in this article.
This technique doesn't really help you pay off your debt but it does stop the interest rates from spiraling out of control. This can be a real life saver if you are walking right on the line, especially between pay packets.
Taking Advantage of the 30 Day Interest Free Period on Credit Cards
This is really the basis behind the debt cycling in order to avoid paying interest rates. On most credit cards, you are not charged any interest until after a 30 day grace period. Generally, the best way to use this is to simply put a small purchase on your credit card and to pay it before the month is up. But if your debt is starting to exceed what you can pay off in the month then you risk having to pay some interest, and this can be quite expensive.
So How Does Debt Cycling Work to Avoid This?
The idea behind debt cycling is that you pay off your oldest debt while adding more 'fresh' debt at the same time. This allows you make a payment on your credit card that you wouldn't otherwise be able to do. While you don't reduce your debt amount, you do avoid the extra interest.
My partner and I like to do this by using our paycheck to pay of the credit card and then using the credit card to pay the rent, essentially cycling out the old debt for new.
Let's use another example to make things clearer:
- On the 1st of January Stacy buys a birthday present for her friend costing $100 using her credit card.
- On the 20th of January Stacy has a small car crash and the bill is $900, which she pays using her handy credit card.
- Unfortunately, Stacy also injured her leg and cannot work for the rest of the month, meaning she wont be able to afford paying off the initial $100 on the credit card without missing her rent.
- Stacy pays off the $100 on the credit card to avoid collecting interest on her card.
- Stacy then pays rent using her credit card, avoiding the interest rates on the $100 and buying herself time until she can work again.
Magic! Well, not really. Stacy was just using the system put in place in order to avoid paying unneccessary interest.
Wait, Can You Avoid Paying Any Credit Card Interest This Way?
It's difficult to manage, but if you have sufficient incoming pay and outgoing expenses then you could potentially cycle out old debt allowing you to indefinitely avoid paying interest. You don't actually need to have a have a 100% paid off credit card to avoid paying interest, you just have to keep a very careful eye on when you made additions to your debt so that you know when to pay it off.
However, I don't really recommend this if you can avoid it. When you are in the position of constantly cycling debt you run the risk of it falling apart when something unexpected happens (which these things do tend to happen). You are essentially balancing on a tightrope with only the 'predictability' of your income and expenditure to keep you steady. It's not a comfortable position to be in.
Use Debt Cycling Wisely and Use it For Emergencies
Now that you know how cycle your debt to avoid paying credit card interest use this knowledge wisely. Don't think it is a silver bullet for credit card debt - it's not. It is a great way to keep things under control in an emergency though, so treat it as such.
If you have your own credit card control tips to share please consider leaving a comment below!