This could be a great way to improve your financial position in 2018
Yonkers, NY - by Carla Fried (CR) - With interest rates rising and people taking on more credit card debt, now is a good time to consider getting a balance transfer card.
Some of these cards allow you to pay zero interest on the amount you transfer, for more than a year, allowing you time to put more money toward paying off your actual debt.
That's especially important now that more consumers have been saying “charge it” when it comes to paying their expenses.
Outstanding credit card debt reached a record high during the first 11 months of 2017. Unpaid balances on revolving credit—which is made up mostly by credit cards—rose to more than $1 trillion, a $53 billion increase from a year earlier, according to the Federal Reserve.
“While it’s great that consumer confidence is high, spending outside of your means is never wise,” says Jill Gonzalez, a credit analyst at consumer finance website WalletHub.
That’s especially true because interest rates on card balances are rising. The average rate charged on credit card balances in November—the latest data available—was 14.99 percent, according to the Fed. That’s more than 1 percentage point higher than a year ago, and 2 percentage points higher than in 2013.
WalletHub estimates that the Fed’s rate hikes through the end of 2017 will add $7.4 billion in interest payments for consumers this year. If, as expected, the Fed continues to increase rates even more this year, the cost to consumers will be even higher.
The takeaway: Consumers would be wise to reduce their credit card debt. Retiring debt that costs you 15 percent or more in interest is the equivalent of earning a 15 percent guaranteedreturn on an investment—a great deal.
A lot of people are likely to do this in the next few months. Experian, a consumer data and credit reporting firm, says that the first quarter is the peak time of year when consumers look to move their high-rate credit card debt to a better deal, perhaps due, in part, to holiday overspending. If you have a credit score in the 700s, you may be able to snag an attractive credit card balance transfer deal quickly.
The Chase Slate Visa card, for example, offers qualified borrowers a 15-month window of zero interest on a balance transfer. Move an outstanding credit card balance to this card and you could have a great opportunity to pay it off, or at least significantly whittle it down. If you are able to use the Chase Slate Visa card, there is no charge to transfer your balance onto this card within the first 60 days after opening the account. Keep in mind, though, that after 60 days, there is a stiff 5 percent fee on any transfer.
Another card, the Citi Diamond Preferred MasterCard, charges zero interest on transferred balances for up to 21 months. The downside, though, is that you’ll be hit with a 3 percent transfer fee.
“These deals aren’t going to last forever. Right now consumers have a lot of opportunity given the competition among card issuers,” Gonzalez says.
If you have a lot of credit card debt, figuring out which balance transfer credit card to use may not seem obvious. “It’s tempting to transfer a few small balances just to have the simplicity of consolidating, and then being able to pay off those debts, but you will save the most money by transferring the highest rate debt and getting it paid off,” says credit expert Gerri Detweiler, education director at Nav, a company that helps small businesses manage their credit.
If you can nab a zero-rate transfer deal, the challenge is to actually get the balance paid off before the rate adjusts. You’ll need to make every payment to the credit card company on time. One slip up and you may lose your zero rate.
Making timely payments can also have a big impact on your credit score. Though the goal is to get your debt paid off during the zero-rate period, if you fall short of that, a higher score can result in paying lower interest rates in the future.
What if you can’t transfer all of your debt to a zero-rate card? Ask your existing card issuers for a better rate. “Convey that you are trying to do better on getting your balances paid off and that you are considering moving your balance to a lower-rate card,” Detweiler suggests.