How to Use Balance Transfers to Dig Out of Holiday Debt
The National Retail Federation predicts that holiday sales for this year will be up to $682 billion, up 4% from last year. Between spending on gifts, decorations, food and greeting cards, holiday expenses can quickly add up and overwhelm your budget.
Pay off debt faster with a balance transfer.
Come January, if it feels as though your holiday spending exceeded your expectations, a balance transfer can help you take control of your debt (even if it’s from holidays past). Here are some tips to make sure the balance transfer offer you choose helps you pay off your holiday shopping spree (or perhaps, sprees).
1. Shop around for a balance transfer credit card.
You spent time checking off that holiday list, right? Take a few moments now to research the best balance transfer offers, based on your specific debt payoff goals.
If you believe you can eliminate your holiday debt within a few months, for example, a 0% introductory APR balance transfer offer that lasts less than a year but has no transfer fee may be more appealing than one that spans more than a year, but charges a higher interest rate and has transfer fees.
While cardholders who have a “good” or “excellent” credit score will likely have access to the most competitive balance transfer options, according to NerdWallet, balance transfers are popular — and there are options even for those who don’t have excellent credit.
Search creditor websites online and check out credible personal finance websites for recommendations and reviews of different balance transfer offers.
2. Consider the balance transfer fee.
Balance transfer fees vary, but typically range from 0% to 5% of the amount transferred. If you have a considerable amount of debt and a balance transfer will reduce the interest rate that applies to the balance for several months, the fee may be financially worthwhile.
If you don’t plan to reduce a significant amount of the balance transferred before the introductory interest rate period ends, however, you could end up with the same or higher interest rate — in addition to the balance transfer fee.
3. Plan to pay off debt by the introductory period’s expiration date.
As you are comparing offers, calculate how much you’ll need to pay on your holiday debt each month in order to erase as much of the balance as possible before the balance transfer offer’s introductory interest rate ends.
Choose the offer that fits with your budget, and mark the introductory rate’s expiration date on your calendar to stay committed.
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4. Don’t use your balance transfer card for new purchases.
The low interest rate you receive for the balance transfer may not apply to new purchases.
Credit card issuers are legally required to apply any payment amounts that exceed the minimum monthly payment first to the balances with the highest interest rate, under the Card Act of 2009. That means that portions of monthly payments you intend to put toward eliminating your holiday debt could be applied to new purchases instead.
Consider your options carefully: The draw of using a balance transfer card to pay down holiday debt is to do exactly that — not to create more of it.