How To Use A Balance Transfer Card To Pay Off Vacation Debt
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The holiday season can be expensive for many Americans, with the average family spending nearly $ 1,000 in 2021, according to the National Retail Federation. Even before all the shopping and hall decking, credit card debt was on the rise in the United States, with the latest data showing an increase from $ 787 billion in the second quarter to $ 800 billion in the third quarter of 2021.
If you put $ 1,000 or more on your rewards credit card while shopping for the holiday season, moving your balance to an introductory 0% APR credit card can save you huge amounts of money and help you to pay off your debt faster if you make a plan.
Select explains how you can move your balance from one credit card to another and what you need to consider before doing so.
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How to transfer your credit card balance to a 0% APR card
Making a balance transfer requires request a new card. First of all, you’ll want to take a minute to check your credit score. The best introductory 0% APR cards require a good to excellent credit score, so you’ll want to know your score before you apply.
Then do your research to find a new card that has a generous 0% introductory offer that includes balance transfers (some only apply to new purchases). Select has a list of the best balance transfer credit cards that meet the needs of almost anyone.
Once you’ve found a card that meets your needs and are approved, you can begin the balance transfer process. You will need to contact your new credit card company and provide them with the following information:
- Name of credit card issuer
- The amount of debt
- Account information
In some cases, the new card issuer will ask you for the card information with the outstanding balance when you complete the initial card application.
Processing can sometimes take a few weeks, so be sure to keep paying at least the minimum on the first card until the balance is officially transferred.
Once you make a balance transfer, your original card is not closed. Even if you don’t plan on using the card, it’s best to leave it open to avoid a ding on your credit report, unless the card has an annual fee, in which case you may decide it’s best to have it. close.
Things to keep in mind when using a credit card with balance transfer
While using a credit card with balance transfer can save you a lot of money, there are a few things to keep in mind.
First, most balance transfer credit cards come with a balance transfer fee, which is probably 3-5% of the balance. So, for a balance of $ 1,000, the new card issuer will charge you between $ 30 and $ 50 in fees.
Additionally, balance transfer credit cards are generally time limited. For example, the The Citi® Diamond Preferred® card offers an introductory APR offer of 0% for 21 months on balance transfers. After 21 months, the interest rate will drop from 13.74% to 23.74% variable. Cardholders will be charged a balance transfer fee of $ 5 or 5% of the transfer amount, whichever is greater, and all transfers must be made within the first four months. To avoid any accrued interest, you can either aim to repay the card before the end of the APR introduction period, or transfer the balance again to continue to avoid interest.
Usually, you cannot transfer a balance to another credit card from the same issuer. For example, if you have an existing balance on a Chase credit card, you cannot transfer to a card like the Chase Slate Edge℠.
You can also only make a balance transfer up to your credit limit – and sometimes even less, depending on the issuer. So, for example, if you transfer a balance of $ 5,000 from Card A to Card B, the second card must have at least a $ 5,000 credit line to complete the transfer.
Some balance transfer cards offer additional benefits that you may be able to use. For example, the Citi® Double Cash card offers 2% cash back: 1% on all qualifying purchases and an additional 1% after paying your credit card bill. However, you will not earn cash back on the transferred balance. Rewards only apply to purchases made with the card.
And last but not least, you must pay the minimum monthly payment each month on the balance transfer credit card. If you are late, the credit issuer can revoke the 0% balance transfer promotion.
How much you can save using a balance transfer card
The biggest advantage of a credit card with balance transfer is the ability to save on interest payments. And the numbers are staggering.
Suppose you have a balance of $ 1,000 and you have 21 months to pay it off, you will need to pay at least $ 55 per month to clear it before interest accrues. If you open the card in early 2022, you won’t have to pay off your Christmas debt until 2023.
But if you just left that $ 1,000 on a card charging you an average interest rate of 17.13%, and you paid the same $ 55 per month, it would take you 22 months to pay off the balance and you should. pay $ 166 in interest charges.
Vacation credit card debt isn’t a great way to start the new year, but an introductory 0% APR credit card is a solid option for refinancing credit card debt. However, interest-free debt shouldn’t be a reason to take on more debt. So, if you’ve spent more than you expected, consider applying for a credit card with an introductory 0% APR balance transfer offer.
As the New Year approaches, now is a great time to build strong personal financial habits, such as having a budget, build an emergency fund, determine your short and long term financial goals, and start investing for the future.
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Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.