Say I bought a TV for $500, but I didn’t even have $500. But – I’m smart – I do have another card! What should I do by the due date? A balance transfer? Well, I’d certainly consider it if I had a current interest free balance transfer offer available. But let’s say I don’t anymore.
The first thing I’d do is work out my average weekly maximum cardable expenditure (not income) – including everything l usually buy but can buy with credit card purchases. For example, groceries, fuel, some bills (some companies don’t accept credit card bill payments, others only in emergencies.) and so on. (Obviously rent or home loan repayments are a big one, but you may or may not be able to pay for these by card depending on who you pay!)
For our examples’ sake let’s make some figures up for my weekly living expenses. Because all plans work on a multiple of the expenditure, we can take any figure as the expenditure to work out and demonstrate the plans. So let’s say:
Groceries $300
Fuel/Transport $100
All Other Bills $100
Total per week $500
If were to put all these living expenses as Purchases on my second card, and used my income to pay off my first card instead of for the living expenses, I would effectively shift the balance from one card to another. A very simply created interest free balance transfer!
By continuing to shift the balance back and forth each month I could have up to $1500 debt ($500 x 3 weeks) and never have to pay interest, or even pay off a cent, ever! (Plus I’ll be earning plenty of reward/loyalty/frequent flyer points while I’m at it.) It would look like this:
EndWeek – Card A – Card B
0 ———- 0 ——– 0
1 ———- 500 —– 0
2 ———- 1000 —- 0
3 ———- 1500 —- 0
4 ———- 1500 —- 0 – End Statement Period
5 ———- 1000 —- 500
6 ———- 500 —– 1000
7 ———- 0 ——– 1500 – Due Date
8 ———- 0 ——– 1500
Of course I’d want to pay it off at some stage because I might want to use it for something else in the future. By combining it with a debt reduction plan it really becomes rather sweet knowledge!
Before we move on to better and better methods, there are a few considerations needed to implement any of these strategies. The first thing you need to do is work out your average weekly maximum cardable expenditure (rounded down to give some leeway.) By maximum I mean try to include as much as possible, everything you’d normally pay for with cash. Because the greater this amount, the more you’ll be able to swap so the more interest you’ll save.
But do not add more than you’d usually spend as that would defeat the purpose! And remember to leave some petty cash spare for places which don’t take credit cards. The expenditure figure you come up with is the figure we’ll be using in all the outlined plans, so it’s worth working out carefully.
Secondly. and as importantly, you will need to keep a record. Do not rely on memory. Who wants to remember how much they spend or owe? So keep all your receipts and add them to your owing total for that card at the end of the day (you may wish to highlight tax deductible items too, if so remember to get itemized bills.) Near the end of the month (or week for later methods) you’ll want some kind of running total handy so you know when you’re getting close to the desired swap amount.
Included in your record will be a calendar with clearly marked statement periods, due dates and payments made. You may also wish to record when you reach the desired swap total for future reference (so you can adjust expenditure if needs be.)
Last but not least you will need a second card if you don’t already have one. There is a section on card selection in the Report.
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