I’ve seen advice out there that doesn’t recommend that you take on more debt to pay off existing debt and I think that’s a bunch of baloney, who’s writing those articles? Credit card companies? It’s math… if you’re borrowing debt at 20% and you can borrow more debt at 19.99%, then borrow debt at 19.99% and pay off your 20% debt! While that is a drastic example, considering your time is worth something, you really should look into ways of reducing your debt’s servicing costs (the interest rates) so that you can accelerate your schedule of paying down the debt. So, why do places advise that you shouldn’t borrow money to pay down debt? I have no idea because you can’t argue against the mathematics! (no better way than to use 0% balance transfer deals)

For a prime example of how you can pay off your debt faster by borrowing, look no farther than Tricia from Blogging Away Debt. By borrowing from numerous sources, including Propser.com, and simply asking her credit cards to lower their rates, she was able to reduce her monthly interest payments from $400 to $100, on a debt of nearly $25,000!

So should you borrow money to pay off debt? Only if you want to save money!

On my other blog I’ve written extensively about taking advantage of 0% balance transfer offers and it’s something I’ve touched upon here a few times in the past but now it’s time to bust out the 0% Balance Transfer Arbitrager’s Toolkit - a set of links (all to my other blog) that will help you figure out how to take advantage of the 0% offers given by the credit cards.

1. First, read this introduction to 0% balance transfer arbitraging to learn about how the whole thing works.
2. Now that you understand the concept, consider opening up an account at Emigrant Direct or ING Direct. There are referrals to ING Direct where you can get $25 for a $250 deposit, no such offer exists for Emigrant.
3. Now, start applying for some of the cards on this list of cards with 0% balance transfer offers. I recommend Citi over Discover because Citi will write a check and send it directly to you.

Share of wallet (or something similar to it) is the term used by credit industry professionals and what it means is how much of your spend a particular credit card company benefits from. For example, I have a couple credit cards in my wallet right now, each one serving a different purpose, and each one of those has a share of my wallet, along with cash, gift cards, etc. Credit card companies want to get in the game, they want to just make it into your wallet because once they get there, they know you’ll use it. Even if the percentage is small, such as my Discover Gas card, which I use only for gasoline purchases; they know that sometimes I might reach for that Discover card if I’m close to a cashback rebate payout or if I just don’t care what card I’m using (for those places that you only ever get 1% cashback).

This is why places offer 0% balance transfers or 0% purchases or free promotional gift cards for you to sign up, they just want to get a piece of the action and get in the game - i.e. get into your wallet (or purse).

The question hinges on whether, given a choice, you should send in a little extra to a debt that you have that is smaller in amount or one that is larger in interest rate. You may think this is a no brainer but it’s actually more about psychology and less about math and it’s a topic personal finance guru juggernauts like Dave Ramsey have tackled in the past.

Dave Ramsey argues that you should pay off the smaller debt because the psychological boost you get from that will spur you towards paying off the other debts. Consider a $1,000 debt and a $10,000 debt and the ability to send an extra $100 with your payment. That extra hundred dollars is 10% of your smaller debt but a mere 1% of your larger debt, regardless of their interest rates. If you keep aggressively paying off your debt each month, you could conceivably erase the $1,000 debt in ten months - it would take you 100 months (it’s actually much more because of interest but we’ll leave it at that for simplicity’s sake). A lot can happen in 100 months and Dave argues that you should pay off the smaller one as fast as possible and then use that payment, which will no longer go to servicing the smaller debt, on the larger debt. This snowball will grow and grow until you’re debt free.

Now, the fallacy of this argument is that you’re paying off a debt that’s growing at a slower pace and with a slower starting amount. $1,000 at 20% will grow by $200 after a year; $10,000 at 20% will grow by $2,000 after a year - that’s a staggering difference of $1,800. As my friend Nickel has said in the past, poor Dave Ramsey is woefully bad at math!

What you should do is pay off your larger debt high interest and then, in the same fashion, use that payment to quickly accelerate the payment of your smaller debts. Don’t listen to Dave Ramsey on this one, it makes psychological sense but not financial sense.

You might have seen that term, 0% balance transfer arbitrage, floating around the internets, one personal finance blogs, on quick money blogs, on any number of sites that deal with money and getting more of it. 0% balance transfer arbitrage is where you take advantage of an offer to earn a little more money for yourself on the side.

In the beginning, credit cards offered promotional 0% offers to folks who were willing to roll over their existing credit card debt to their card. The reason for this was that after the promotional period, the card holder would likely stick with the new card and thus make their interest payments to them. This is a win-win for both sides - cardholder gets 12 months of 0% financing, credit card company gets to earn interested after the promotional period.

Enter in the savvy credit card user. Now, with the ease with which you can get a balance transfer, many folks are getting a 0% balance transfer check and depositing it with a high yield savings bank like ING Direct. What this means is that you’re borrowing money at 0% and earning 4.6% (some accounts have as much as 5.05%) on it, a $10,000 balance transfer would net you $460 for absolutely no work whatsoever. $460 is nothing to sneeze at.

Are there pitfalls? Certainly, the effect on your credit score will be negative - but if you don’t plan on getting any big loans in the near future, this could be an easy way to boost your cash flow with little risk. Another pitfall is not watching the terms closely, there are cards that will give you a 0% balance transfer but charge you a fee, which can kill the deal. It’s important to double check that you’re getting a no fee balance transfer when you execute it.

There are three major credit bureaus in the United States and each one of them tries to keep an accurate picture of you in terms of credit worthiness. The three bureaus are Transunion, Experian, and Equifax and you might be wondering what goes into this magical and mystical “credit score” and what you can do to improve that score so that you can get favorable loan terms the next time you need an auto loan or mortgage.

Before we go into the vague mathematics, let’s first discuss the underpinnings of credit scores so that the math makes sense. Imagine you have to lend someone money and you know nothing about this person, what sort of information would you like to know about them? You probably want to know how much they currently have borrowed (outstanding debt) right? The more they have borrowed, the less likely you’ll want to lend to them. You probably want to know how often they’ve paid on time, how often they’ve been late, or perhaps if they’ve ever defaulted (payment history). As you think about this more, if you could buy a history report on a person, you probably want to know how far this history goes back (credit history length) so you can see a trend or pattern. Finally, if you’re really good at this sort of thing, you probably want to know how many times this person has asked for credit recently (number of inquiries) because they could be trying to get a lot of credit quickly, you don’t want to keep giving this person money if they’re in a tight spot.

So, now that you’ve gone through that, here’s what goes into your credit score:

• 35% is based on your payment history - This covers how many times you’ve been late, whether it’s gone to collections, etc. Time is a factor here, having paid late ten years ago is less damning than missing that payment last month.
• 30% is based on your outstanding debt as a percentage of total credit - If you’ve tapped 90% of your credit and are looking for more, you’re far riskier than someone who has tapped 10% of their available credit and wants a new card. The higher the credit utilization, the lower your score.
• 15% is based on your credit history length - This is why people advise you to get a credit card early (even if it means sticking it in a drawer), the longer your history the better because they have more information to work with. A history of a year is clearly not as valuable as a history of ten years.
• 10% is based on your number of inquiries within the last year - In a tough financial spot? You’re probably going to be requesting for credit. If you have too many pings in the last year, your score is going to be lower than if you didn’t have any. This makes sense, if I told you that the person you wanted to loan money to just opened five credit cards in the last month, you’d likely be wary. Lenders think the same way.
• 10% is based on the types of credit you have - The number and type that you have will be a factor and this is only significant if there isn’t much information from the other categories. From a personal perspective, if you know someone has $15,000 in debt, it makes a big difference if it’s credit card debt or if it’s a car loan, right?

So, those are the five major factors that come into play when it comes to calculating your credit score, hopefully I’ve cleared some of it up for you and the number seems a little less magically generated.