Americans love to celebrate “The Holidays,” which have become far more than Christmas, Thanksgiving, or any single day. These days, the holiday season begins in November and lasts until after the new year, and always includes plenty of spending on gifts, parties, and vacations. But sometime in January, many Americans will open up their credit card statements to find that they have a sizeable debt from the holiday season. And the sooner that you start paying off your holiday debt, the sooner you can relieve yourself from both the interest costs and the stress of carrying a balance.
Taking the first step
The first thing that you will need to do is to take an inventory of all of the debt you have. Collect all of your credit card statements and any other account information related to what you owe, paying special attention to the interest rate that is being imposed on your unpaid balances. It’s also a good idea to take a look at your current credit score. Thankfully, many credit card issuers now offer customers a free FICO credit score each month on their statements or online.
Taking a break from interest charges
If your credit score is high enough, you will be able to qualify for a credit card that offers 0% APR introductory financing on balance transfers. These promotional financing offers are available to new cardholders for a limited time, and then interest begins to accrue on the remaining balance at the standard interest rate for purchases. By law, these promotional financing offers must last at least six months, but the longest offers can last for 21 months, well past the next holiday season.
If you can qualify for one of these offers, it’s absolutely the best way to pay off your holiday debt as soon as possible. And while these offers may appear to be too good to be true, they are a legitimate way to accelerate the repayment of holiday debt. The reason these offers exist is for credit card issuers to acquire new customers, so the interest free financing is essentially a sign-up bonus. On the other hand, applicants should be aware that they will not be able to transfer a balance from another card issued by the same bank or credit union, as that would defeat the purpose of acquiring a new customer. In addition, nearly all credit cards required the payment of a 3% balance transfer fee, which gets added onto the new balance. Nevertheless, this 3% fee is far less than the cost of most credit card’s interest charges, which normally range from 10% – 20% per year.
Once you have secured an interest free promotional financing offer, it makes sense to transfer your balance with the highest interest rate first, followed by the ones with the next highest interest rates. And most importantly, you will have to make a minimum payment each month on the new balance, although the entire payment will be credited toward the principal. This gives you the opportunity to both pay off your balance sooner and avoid interest charges.
Unfortunately, some credit card holders will use these promotional financing offers to postpone paying off their balance, which is a mistake. The best way to utilize these offers is to continuously pay off the balance so that you have no remaining debt by the time that the promotional financing period ends. In this way, you are using the limited time offer to your advantage by treating it as a goal.
Choosing the best promotional financing offer
While interest free offers for balance transfers can last as little as six months, the most competitive offers will extend for 15 months or more. For example, the Chase Slate card features 15 months of interest free financing on both new purchases and balance transfers, and it is one of the only cards that does not have a balance transfer fee. In addition, both the Citi Simplicity and the Citi Diamond Preferred cards offer 21 months of 0% APR financing on both new purchases and balance transfers, with no balance transfer fee, making them the longest interest free financing offers available from any major credit card issuer.
Paying off debt without a promotional financing offer
For those who are unable to qualify for an interest free promotional financing offer, there are still several things that you can do to pay off your holiday debt sooner. First, you can transfer the balances among your existing cards to the ones that have lower standard interest rates. However, the difference in interest rates must be large enough to make the 3% balance transfer fee worth it, although there are more cards without balance transfer fees that offer balance transfers at the standard interest rate.
Cardholders can also contact their card issuers and ask to have their interest rates lowered. The interest rate that many cardholders receive is the one they qualified for when they opened their account, but if your credit score has risen since then, you may be eligible to receive a lower standard interest rate.
Another trick to paying off your balance sooner and reducing the amount of interest that you pay is to make multiple payments each month. Recognizing that credit cards charge interest based on an account’s average daily balance, you can reduce your interest charges by paying as much as possible, as soon as possible, even if it means making several payments in a month. For example, you can submit payments that correspond with the dates that you get paid. Finally, you will always want to pay your bill electronically, as it will be faster and more reliable than mailing in payments.
Other ways to repay your holiday debt
Once you have tried to obtain the lowest interest rate possible, and used all of the payment tricks you can, you are left with the fundamental task of coming up with more money for repayment. Households with debt should take a close look at how much money they earn and spend, and create a budget that maximizes the amount of money they can commit to repaying their holiday debt. Common steps include curtailing discretionary spending on dining, entertainment, and vacations. At the same time, families can take steps to increase their income such as working extra hours, or taking on additional part-time or freelance work. Finally, it’s important for the entire family to work as a team to pay off the debt.
Another strategy is to liquidate any unused assets. For example, families can hold an actual garage sale, or just sell unused items using online tools such as Craigslist and Ebay. In fact, items purchased for the holidays can even be returned for credit back to your account, which has the same effect as making a payment. Even better, your credit card may have a return protection policy that can come to the rescue if the retailer will not accept the return for any reason.
Final word
Credit card debt is not just a financial burden, it’s also an emotional one. By using every available strategy to manage your debt and pay it off, you can hasten the day when you are saving for the future, rather than paying for your past purchases.
