Debt destroys people.
You’ve probably seen it happen to people in your life. Or it may have happened to you.
The reason debt destroys people… families… sometimes entire countries… is the same reason investments can lead to unimaginable wealth.
It’s what Einstein, perhaps apocryphally, called the most powerful force in the universe: compound interest.
Compound interest is great when it’s snowballing your wealth — growing your investments year over year, slowly at first and then rapidly as it picks up steam.
When last year’s 8% gets added to the bottom line and itself grows 6% next year, and then the newer, larger total grows 11% the year after… and so on for as many years as you care to let it grow, it feels magical.
But when you’re on the other end of the spectrum, there’s nothing magical about it at all. Hellish is more like it.
If you aren’t able to pay off your debt and it grows a bit each year… with interest getting applied to ever-larger numbers… it can feel impossible to escape.
That’s why the U.S. innovated such powerful bankruptcy laws — as an escape valve to let off the steam of ever-increasing debt.
But those valves are failing these days — partially because there are some debts that bankruptcy can no longer absolve.
Most types of student debt, for instance.
And there are plenty of debts you don’t want to go away — like a mortgage, which is secured by your house. Declaring bankruptcy can easily see you homeless at the end of the process.
I’m not going to tell you I have all the answers. Dealing with spiraling debt is one of our greatest challenges — I can’t fix it in a few hundred words.
But I can help you get off the debt treadmill — at least for a breather.
I want to give you a chance to stop compounding interest in its tracks… and live with debt, for a little while, without worrying that it will destroy you.
The good news is just about every bank in the world is drooling to give you this opportunity.
How do you do it? Simple: balance transfers.
The Only Kind of Debt to Carry
You’ve probably heard about balance transfers from your credit card companies now and again. They’ll dangle all sorts of offers to let them take on all your debt for you.
But you probably also know — thanks to insanely high interest rates — that credit card debt is the worst kind and you should avoid it all costs.
So those balance transfer offers wind up in your trash time and again.
And you’re absolutely right — you don’t want credit card debt. If you’ve got it, you want to get rid of it as fast as you can.
With the huge, glaring exception of balance transfer offers. Which are simply the best kind of debt you could ever hope to have.
Here’s how it works — or at least how it works with credit cards that offer favorable balance transfers…
- First, you tell your credit card company how much money you want loaned to you.
- You can elect to have it sent directly to creditors, use it to pay off other credit cards or even have it mailed out to you as a check.
- Then you’ll get charged a lump sum on that amount. If you’ve chosen a good balance transfer offer, that lump sum will usually be 3–5% of the total amount you’re borrowing.
- Lastly, that money sits on your credit card balance… and if you’ve chosen a 0% transfer offer, it doesn’t get charged any interest for the set period of time. Usually 12 or 18 months, but sometimes even longer.
In other words — you just froze the compound interest debt death spiral. You’ve given yourself a year or more to figure out how to pay off that debt.
And you’re now paying only 3–5% interest on your debt… which is lower than just about anything else out there.
If you’ve got credit card debt — with interest rates often well over 20% — you should use a balance transfer today.
Or if you’ve got a student loan you can’t pay off, you can use a balance transfer to take it down to zero. That way if you wind up in bankruptcy, that debt can be forgiven.
The truth is for just about any kind of debt you might have, balance transfers are cheaper to start — and save you money in the long run.
As long as you never let that balance become regular credit card debt… You’ve got to be responsible about tracking your time frames. And never leave the debt longer than the interest-free period offered.
Now, before you get too excited and start buying that fancy new $8,000 TV you’ve been eyeing, be aware this is something you can’t do forever…
For one thing, you need to have decent credit scores to get the kinds of credit cards that offer friendly balance transfer terms.
And carrying that balance transfer debt on your credit cards ups your credit card utilization — which lowers your credit score.
The last thing you want to do is roll over your balance transfer debt year after year, until one year you realize you don’t have enough credit — or a high enough credit score — to grab another good balance transfer offer. This isn’t a permanent solution.
But it’s the best possible way to get yourself out of a tight squeeze. To give yourself the space to get your ducks in a row within 12–18 months… or 24–54 months if need be.
My point is it gives you options.
And a loan for as little as 3% a year.
Try to top that.
Editor-in-chief, Unconventional Wealth
Ryan Cole is the editor-in-chief of Unconventional Wealth. He’s been covering the alternative investment space for nearly a decade and writing about finance and investment for almost 20 years.
Ryan has walked the walk for years, living a very unconventional life. He’s led snowmobile tours through the mountains of Colorado, settled in Japan for five...