Ignore for today that my advice is always to pay off your credit card(s) every month. For whatever reason, people often end up with credit card debt on multiple cards.

Let me introduce you to a fictional friend: Rocky.

Rocky has 3 credit cards carrying a total of $7,000 in balances:

• Chase Visa: $3500
• Best Buy: $2000
• Local Bank Master Card: $1500

Collectively, the weighted average interest rate on these cards is 17%. Rocky is paying the minimum on each card every month, which totals $75. He can only pay the minimum because he was recently laid off from a bank that failed (take your pick). Rocky is digging a hole that he can’t get out of because while he is paying $75 a month on the cards, he’s accruing about $100 a month* in interest. So, his balances are increasing about $25 a month!

Rocky received some direct mail from Capital One, offering balance transfers of up to $10,000. On top of that, the interest on transfers is 0% for the next 18 months. He called Capital One and they told him his minimums each month would be $50 if he rolled these balances over. Rocky nearly wet himself. Why is he so excited?

By rolling the $7,000 from the 3 cards above into Capital One, he’s reducing his monthly payment by $25. On top of that, he’s saving $100 a month in interest. This is essentially a net gain of $125 every month for Rocky. He now has a year and a half to get the card paid off without getting any interest penalties. Why should Rocky be concerned?

First of all, our friend has shown that he is not the best at managing credit. With 3 cards now without balances, there will be a temptation to go put “just a couple of things” on these cards. Before, he psychologically controlled himself from adding to the balances; this mental barrier is no longer here and temptation can take over. Every dollar he puts on the old cards now increases his debt. As is the case for many people, he could easily end up with 4 cards carrying a balance of $10,000 in a few months.

Second, Rocky’s new card has an interest rate of 22%. This is much higher than before. Though it won’t accrue for another 18 months, if he doesn’t have it paid off, he’s looking at $112 a month** in accruing interest, worse than before. This is a situation he’ll be facing if he can’t find a job and/or he runs up the balances on the other cards again.

Third, and this is a big kicker. If Rocky misses any payments with Capital One during the 18 months, the interest that wasn’t accruing will suddenly accrue. So, if in month 17 our dear friend forgets that stamps went up another penny and his payment is late, he’s looking at another $1900 added to his balance*.

As you can see, Rocky stands to come out ahead if he’s responsible. But if he is anything but responsible, he loses. Most of us will let “life” get in the way and come out losers. Dave Ramsey would suggest that you just pay off the cards as is, and cut them up. Dave Ramsey assumes Rocky can’t be trusted with those accounts. I don’t trust Rocky either. So, here’s what I would tell Rocky to do over a beer (he pays for it with his Chase card, hence the no trust).

Roll the cards into Capital One and then cancel your previous three. Yes, this will hurt your credit rating, but we’re focusing on getting you out of the hole. Get a job, get out of the hole, then worry about your precious credit score. What good is a score if you can’t afford a loan? Next, Rocky needs to make it his priority to pay his new card every month. A good way to do this is link the account with his checking account and make automatic payments.

Now that Rocky has closed the accounts and set up the new card with automatic payments, he needs to focus on paying off the card in 18 months. Get a job, sell stuff, whatever, just pay off the card.

Finally, the inevitable may happen, and he is left with some balance after 18 months. The back-up plan is known as the "game the system" plan. Before your 18 months are up, call Capital One. Ask them to extend the period or lower your interest rate. If you're in good standing, they'll likely comply. Why? Because you're threatening to leave them if they don't. This country loves credit, and there are hundreds of other companies out there that would love your credit card balances. Based on the new terms, Rocky can decide to move the balance to a new card or not. He can literally rinse and repeat as many times as he can still get approved for new cards.

This is not meant to detract from the point that Rocky will have to pay off his cards at some point. Every new account comes with risks, and eventually he would kill his credit. I advise Rocky tries this once or twice, but after that he risks getting lost in all the bills and solicitations. If you are like Rocky, but can't trust yourself, play it safe and do it just once. You'll save hundreds or thousands in interest, and lower your monthly minimums at the same time. If you're like me, you pay off the card every month and deserve a pat on the back.

* For those playing the home game and following my math through the post, to keep things simple I'm using simple interest. Were we to use compounding interest, everything would be higher.
** This assumes the $50 a month payments were made with a net balance of $6100 after 18 months.
*** I used the $112 per month figure to keep things simple. It would be more.