Using Credit Cards to Buy Time on Holiday Debt
Holidays are great. The music, the lights, the food, the drinks... And don’t forget shopping, either. Holidays put us in a special state of mind. With all the coupons, discounts, and plethora of the best deals ever, who can resist? Yep, holidays are great. But there is one not such a great thing about them; they are bound to come to the end one day.
Yeah, about that…
Chances are, if you’re like most Americans, your holiday season might end up with a fat question mark—how to pay for all that stuff you have charged to your credit card. If on January 1st (OK, make it January 2nd) you are faced with this question, remember that mailing in a minimum payment is never a good option. With an average national APR (annual percentage rate) hovering at 13-15% level, you’d better believe it that whatever you’ve saved during the holidays will be wiped out in a matter of just a few months.
Don’t believe me? Let’s say you put $3,000 on your regular 13% APR credit card. If you pay only minimum payment, by the end of the year you might pay about $400 in interest. And you won’t get any closer to paying off the principal. Of course, it’s just an approximation, because different issuers use different methods for charging interest and establishing minimum payment.
Paying Charges in Full
So what’s the solution? Well, the best way to deal with it is to stay within your budget and make sure you can pay off your charges by the due date. Yes in full!
Can’t do this? Relax, I’m human too. There is another way of softening the blow, but it’s not for everyone, and you’ve gotta be disciplined and almost religious about it. Most of all, you should not use it as a mental excuse for overspending.
The Best Balance Transfer Credit Cards
Your goal would be to transfer your high-interest balance to a credit card with promotional offer of 0% APR; no annual fee; and preferably no balance transfer fee—then paying it off within the allocated time.
As of right now, there are two credit cards that qualify. The first is Chase Slate. They offer 0% APR, no annual fee, and no balance transfer fee for 15 months if you transfer the balance within 60 days upon opening the card. This card is open to all consumers with good-to-excellent credit and would be perfect for such purposes.
Another card I could recommend is Chase Freedom. They do charge 3% balance transfer fee, but right now they also have a $200 sign up bonus. That bonus would cover a transfer fee for almost $7,000. Anything smaller and you’re even left with a little profit (let’s hope, you aren’t planning to run a debt this high anyway).
Chase Slate vs. Chase Freedom
You might wonder why I put Chase Slate card in the first place if Chase Freedom is so awesome? Well, because it’s awesome, that’s why! There is a lot of temptation with Chase Freedom. This card has 5% quarterly cash back on different categories, and it’s a great go-to card. Compared to Freedom, Chase Slate is plain vanilla, which is exactly what you need to dispose of your debt quickly and efficiently.
Remember that credit cards don’t give you these offers because they love you. They hope that you will continue making debt and sail into their higher APR upon the promo’s end. Don’t be that guy/gal. Do not use the 0% APR card to make new purchases—that will only put you deeper in the red and completely defeat the purpose!
See what I meant when I said you had to be disciplined?
Transferring Holiday Debt
Let’s say you’ve bought stuff for $3,000 that you want to pay the charges off, but can’t do it immediately. Here is what you need to do.
- Transfer your high interest balance to the 0% credit card. Try to get it in advance in anticipation of the debt accumulation.
- Put this card in the sock and forget it even exists (except don’t forget to pay them $200 a month).
- After you’re done with your debt, do whatever you please.
If possible, try to pay off your debt sooner than 15 months. There will be another Black Friday and Christmas next year, and I’m sure you’ll want that iPhone 15Z or whatever. So plan accordingly.
Having said that, nothing beats staying within your budget and not making credit card debt in the first place.