50% of us are still paying off Christmas 2023: How to win the balance transfer game – Mary Hunt

by Mary Hunt, contributing writer

Editor’s Note: With the current threat to ID theft and malicious use of our credit cards caused by the cyberattack breach potentially impacting over 330,000 Rhode Islanders or more, this is a good time to take a moment to review your credit card use, strategize ways to pay off debt, etc. A recent survey from WalletHub found that nearly 50% of Americans are still paying off debt from last year’s holidays. That’s double the percentage who were paying old holiday debt at this time in 2023.

What’s done is done for this year – but there is New Year Resolution time coming soon – let’s make 2025 the year to change our use of credit and manage our debt.

Here’s Mary’s ideas on consolidation:

There’s nothing enjoyable about credit card debt. An outstanding balance of $5,000 at 29.99% interest means you’re paying about $1,500 a year just in interest. Imagine if that $1,500 could instead go toward repaying the balance. You’d pay it off much faster instead of stretching it out over years. And years.
If you’re carrying credit card debt, strategically using a balance transfer could help you escape the burden. However, there are risks to be aware of — pitfalls that could worsen your situation if not handled strategically.

To succeed with a balance transfer, you need financial discipline and maturity. If you’re ready to commit, follow this strategy:

STEP 1: FIND THE RIGHT BALANCE TRANSFER CREDIT CARD
Look for a card offering at least 15 months of 0% interest, no annual fee, and minimal or no balance transfer fees. A free website like IndexCreditCards.com can help you compare options.

STEP 2: READ THE FINE PRINT
Carefully review the terms and conditions before applying. Make sure you fully understand the introductory rate, balance transfer fees and any other important details.

STEP 3: CREATE A REPAYMENT PLAN
After transferring your balance, divide the total amount owed by the number of months in the 0% introductory period. This calculation gives you the monthly payment required to eliminate the balance within the promotional time frame. Commit to this amount.

STEP 4: AVOID USING THE NEW CARD
The new account should be dedicated solely to paying off the transferred balance. Don’t make new purchases with it. Don’t carry that card with you “just in case of emergency.” As long as you have the card available, you will experience emergencies. Count on it.

STEP 5: CLOSE THE ORIGINAL ACCOUNT
Once the balance is transferred, close the original account. This step prevents you from falling into the trap of using the old account and accumulating new debt on an old account. While closing an account may temporarily lower your credit score, paying off the new account quickly will help recover those points.

BE AWARE OF COMMON PITFALLS
The Switcheroo: Some credit card issuers reserve the right to offer you a different account if you don’t qualify for the one you applied for. This substitute account may lack 0% interest or carry high transfer fees. If this happens, you are not obligated to accept the alternative. Do this: Run, don’t walk away, and stop all communication.

Double Trouble: If you don’t close the original account after transferring the balance, you may be tempted to use it again. Don’t assume you will suddenly have acquire a new level of personal discipline.
Transfer Fees: Many balance transfer cards charge a fee of $5 or 3% of the transferred amount, whichever is higher. While cards with no transfer fees exist, they’re harder to find, so be prepared to search.

STAY DISCIPLINED TO WIN THE GAME
A balance transfer can be a powerful tool to eliminate credit card debt, but it requires focus, determination and a solid strategy. Stick to your plan, avoid new debt, and you’ll be on your way to winning the balance transfer game.

Mary invites you to visit her at EverydayCheapskate.com, where this column is archived complete with links and resources for all recommended products and services. Mary invites questions and comments at https://www.everydaycheapskate.com/contact/, “Ask Mary.” This column will answer questions of general interest, but letters cannot be answered individually. Mary Hunt is the founder of EverydayCheapskate.com, a frugal living blog, and the author of the book “Debt-Proof Living.”