Transfer balance cards can help you pay off vacation debt

If you’re unexpectedly overwhelmed while doing Christmas shopping, perhaps even using credit cards to cover some of those purchases, a balance transfer card can be a great option to help you get out of debt.

Many balance transfer cards offer a 0% introductory interest rate, which can save you big bucks on interest and pay off holiday debt much faster.

How do credit cards with balance transfer work?

Balance transfer cards allow you to transfer balances from other credit cards and often offer a particularly low interest rate on transferred debt for an introductory period. Because you have a window of opportunity when no interest is accrued, it’s often possible to deleverage faster.

“Credit card companies often offer balance transfer offers to attract new customers… Many balance transfer cards offer an introductory rate of just 0% APR that lasts between six and 21 months,” says debt attorney Leslie Tayne von der Tayne Law Group. “This can be a great tool for cardholders looking to pay off debt faster.”

It is also possible to transfer balances from multiple credit cards onto one balance transfer card to consolidate your debt. This step can help eliminate interest charges for multiple credit cards while keeping track of monthly bills and avoiding arrears.

“Once you consolidate balances from other cards onto the new card you just opened, all balances are valued at a low introductory rate, simplifying your payments and saving you money,” says Elly Szymanski, associate vice president of credit card products at the Navy Federal Credit Union.

What should you watch out for with a credit transfer card?

When looking for a prepaid transfer card, it’s important to choose carefully and read the fine print of the credit card agreement. There are many 0% credit cards on the market, but not all offer the same benefits and some charge higher fees than others.

Transfer Fees

While a balance transfer card can offer the money-saving benefit of a competitive APR, there are other costs to consider. This includes the fee normally charged for transferring the balance, which can range from 3% to 5% of the transferred debt.

“So if you have a large balance to transfer, it can result in a large fee,” says Tayne. “For example, if you transfer $10,000 to a card with a 4% transfer fee, that means your account balance will be immediately credited with $400.”

When purchasing a transfer card, be aware of the transfer fee that each card charges, and try to find a card that offers the cheapest fee along with other terms that work for your needs.

While the fee for transferring the balance can be daunting, in many cases it’s still a better deal in the long run than leaving your debt on a high-yield credit card, given the sharp rise in APRs over the past year. According to Bankrate, the current average APR for credit cards is a whopping 19.4%.

“For cardholders with a large balance on a high-yield credit card, this fee is relatively small compared to the total interest they would pay over time,” says Tayne.

Duration of the introductory phase

Another important point to consider when purchasing a balance transfer card is the length of the introductory period for the 0% APR. Some only have a six-month window for this special price, while others offer almost two years without accruing interest.

You should think realistically about how long it will take you to get out of debt and choose a card that gives you the best chance of achieving that goal.

“You should plan to pay off the entire balance before the 0% introductory rate expires,” says Amy Maliga, a financial educator at nonprofit credit agency Take Charge America. “The introductory price can last anywhere from six to 21 months, so plan accordingly. If you can’t pay the balance before the standard rate goes into effect, you could end up wasting potential savings.”

When calculating how long it is likely to take to pay off the debt, consider the balance transfer fee that will be added to your capital, and determine what your monthly payment needs to be to cover the full amount of your new to settle balances.

reward programs

As an added bonus when transferring your debt, you may be able to secure a new credit card that offers valuable rewards programs. This may include travel awards, cash awards, or other rewards that are beneficial depending on your spending patterns or lifestyle. Also note that if you transfer a balance to a card that offers rewards, you will not earn points for the amount transferred. Bonuses only apply to new purchases.

Tips for paying off vacation debt with a 0% balance transfer card

Once you’ve opened a 0% interest credit card, you can use these additional steps to accelerate the power of your balance transfer to pay off debt:

1. Identify areas where you can eliminate spending. To maximize your debt-repayment efforts, review your spending patterns and bank statements, and identify areas where it’s possible to divert money to your credit card bill. “Focus on areas where you can reduce spending, like entertainment and food, so you can make larger payments and pay off the balance faster,” says Maliga. “You might also want to consider adding a part-time job or doing gig jobs and using your income to make extra payments.”

2. Create a monthly repayment schedule and stick to it. Creating a monthly repayment plan allows you to determine how much you need to pay each month to clear the balance before the end of the introductory period, and also serves as a guide to keep you on track.

3. Set up automatic payments and calendar reminders. To ensure you stay on track with your repayment plan, consider setting up automatic monthly credit card payments. “I would also recommend setting a calendar reminder for the end of the promotional period so you can manage your spending accordingly before your rate changes. This can also help you stay on top of your budget,” says Szymanski.

Pros and cons of using balance transfer cards

There are many advantages to using a balance transfer card to manage your holiday debt, but there are also some important disadvantages to be aware of.

Pro: 0% interest up to 21 months. Some of the best deals include 0% APR for almost two years. This is a huge savings at a time when the average credit card APR is nearly 20%.

Professional: Pay off capital faster. By eliminating interest accumulation, you can pay off your debt much faster. “This can be a great tool for cardholders who want to pay off their debt faster because payments are 100% on the principal during the introductory period,” says Tayne.

Con: Transfer fees. Transfer fees range from 3% to 5%, and depending on how much you owe, these costs can add up. “The larger the balance you’re trying to transfer, the higher the fee you’ll have to pay,” says Tayne.

Cons: Can cause you to get into debt. The key to the success of your debt elimination plan with a balance transfer credit card is not to accrue new debt on the card – or cards – that you just paid off. It’s important to be diligent about it, otherwise you could end up in even more debt.

Disadvantage: 0% will eventually expire. When the introductory interest period ends, the new interest rate you will be charged can be very high. It is important to ensure you have a plan to repay your balance before this new rate is enforced or you will wipe out any savings you may have made.

take that away

Balance transfer cards can be a very useful financial tool to help you eliminate holiday debt. But they’re only a good move if you’re responsible for not going back into debt on the cards you just paid off. It’s also important to read the fine print when opening a balance transfer card to ensure you fully understand when the introductory rate ends and how much you’ll have to pay to transfer your debt to the new card.