Time is not on your side when it comes to credit debt


Decorations have been put away and mailboxes are now filling up with credit card bills instead of greeting cards.

If you overindulged in gifts and entertainment in December and your card balances are higher than expected, it’s important to develop a plan to pay off the debt as quickly as possible, say credit experts.

“Don’t put those bills aside thinking they’ll look better if you come back to them later,” said Bruce McClary, spokesperson for the National Foundation for Credit Counseling. When it comes to paying off high-interest card debt, he said, “time is not your friend.”

If you have good credit, but got a little carried away with year-end spending, you might want to consider transferring your balances to a low-interest credit card. Zero Percent Balance Transfer Offers let you pay off debt affordably over time, and some cards offer people with healthy credit scores terms as long as 12 to 21 months, said Nick Clements, co-founder of MagnifyMoney.

The problem, he said, is that consumers need to be disciplined and make payments on time or they risk losing the promotional offer. That means they’ll be back to paying double-digit interest rates. Also, he said, try to find a card that doesn’t charge a transfer fee, which is often 3-4% of the transferred balance.

If you have a large balance, you may not be able to transfer the full amount, depending on the new card’s credit limit. But, he noted, you can save money by transferring even some of the debt to a 0% card.

Another option that’s becoming increasingly common, Mr. Clements said, is a personal loan, often from online lenders or, increasingly, traditional banks. The loans are unsecured, like credit card debt, but have a fixed repayment term – usually three to five years. Some lenders provide loans for larger amounts and interest rates can be as low as 5 or 6% for borrowers with good credit.

But Mr Clements warned that the loans could have upfront costs and, as they are fixed-term loans, borrowers must make level monthly payments. Borrowers cannot fall back on low “minimum” payments, as they can with a credit card if money is tight. “That flexibility is going away,” he said.

Credit…Elise Amendola/Associated Press

Additionally, rates will be higher for those with less than stellar credit. You will therefore need to compare the rate on your card with the rate on the loan to see if you will actually save money. Often, he said, borrowers can check their potential rate without the inquiry affecting their credit report.

To prevent card balances from spiraling out of control, Julie Pukas, manager of U.S. bank and merchant card services at TD Bank, suggests cardholders use text or email alerts to Notify when their spending is approaching their credit limit, when their balance reaches a certain limit, or when a payment is due. “They can help take control of their accounts just by getting reminders,” she said.

Ms Pukas also suggested that cardholders using rewards programs check to see if they can receive their points or cash back as a credit on their card statement to help pay off their balance.

Bill Hardekopf, managing director of LowCards.com, recommended consumers try making micropayments over the course of a month, rather than waiting until the account’s due date to make a lump sum payment. If you have extra money, you can make a payment at any time and reduce the interest you’ll pay if you carry a balance, he said.

Here are some credit card refund questions and answers:

Which credit cards currently offer 0% interest with no transfer fees?

Chase the slate offer 15 months at 0% no transfer fees, and some credit unions offer 12 months no transfer fees, Clements said.

Other cards have relatively low 3% balance transfer fees and long terms: Citibank’s Simplicity Card offers 21 months and Discover It offers 18 months.

What’s the best way to pay off multiple credit cards?

One way is to list all of your cards, from highest to lowest interest rate, regardless of balance. You put all your extra money in to pay off the first balance on the card, then work your way down the list until it’s all paid off. (You must continue to make at least the minimum monthly payment on all cards, to keep them in good standing.) The idea of ​​this scaling method is that paying off the most expensive debt first saves you money. the money.

But some consumers with multiple cards might be better off paying the smallest balance first. Most people don’t even know what the interest rates are on their different cards (the average consumer has four), and the rates on cards held by a single consumer tend to be similar because they’re based on its credit score, said Rémi Trudel, assistant professor of marketing at Boston University’s Questrom School of Business. He and several colleagues have recently published a study suggesting that paying off the card with the smallest debt first gives a sense of accomplishment and encourages consumers to move on and pay off more debt. “It’s more motivating,” he said.

Once I have paid the balance on a card, do I have to close the account?

TD Bank’s Ms. Pukas says she doesn’t generally recommend closing card accounts because it could actually hurt your credit score. (Closing an account can affect your usage score, a measure of how much credit you have.) Instead, she suggests putting the card aside in a drawer for safekeeping.


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