How to Overcome Holiday Debt With a Balance Transfer

Kat Tretina

February 6, 2018  •  4 Minute Read

Financial Tips

Americans added $1,054 to their debt balances over the holidays, according to a survey by Magnify Money. What’s more, 85% of the survey’s respondents put the debt on credit or store cards.

High-interest debt is no joke. According to the Federal Reserve, the average credit card interest rate was 14.99% as of November 2017, and store cards charge even more (24.99%), according to CreditCards.com. In this article, we’ll discuss how much your newfound debt can cost you and how a credit card balance transfer can be the solution.

Doing the math on your holiday debt

It’s hard to say for sure how much your holiday credit card or store card debt will cost you because it depends on how long it takes you to pay it off. To give you an idea of what to expect, we’ll offer a couple of different scenarios:

Minimum payment

Let’s say you make just the minimum payment on your credit or store card. Your minimum payment is typically calculated as 1% of the balance on the card with a minimum amount that depends on the bank. For the sake of simplicity, we’ll say that your bank has a minimum of $35.

If you have a credit card with the average interest rate of 14.99%, it will take you 39 months to pay off the card, and you’ll pay $276 in interest along the way. If you have a store card, you’ll be debt free in four years, and you’ll pay $621 in interest.

Paying $100 a month

Now, let’s say you can afford to put an extra $65 toward your debt each month for $100 total. Even though it might not seem like much, you’re repayment period and interest paid drop significantly.

For example, if your debt is on a credit card, you’ll pay off the debt in 12 months and pay $83 in interest. And if it’s on a store card, your repayment period and interest paid go down to 13 months and $148, respectively.

Consider a balance transfer to avoid interest altogether

Balance transfer credit cards offer 0% APR promotions to assist you in paying down your debt faster and with less interest. Some cards offer up to 21 months with no interest.

The trick is to find a balance transfer card that doesn’t charge a balance transfer fee. This fee typically ranges from 3% to 5% of the transfer, so a $1,054 balance would result in a fee between $32 and $53. That’s still lower than the interest you’d pay in both scenarios above, but it could be free.

One card that offers this special combination of a 0% APR promotion and no upfront balance transfer fee — essentially a get-out-of-debt-free card — is the Chase Slate® (Expired Offer). The card offers a 0% APR on purchases and balance transfers for 15 months. After that, the standard APR is 16.24% to 24.99%, depending on your creditworthiness.

If you were to transfer your $1,054 balance to the Chase Slate® (Expired Offer) and pay it off within the 15-month promotional period, you’d pay about $70 per month and avoid interest altogether.

3 things to consider before applying for a balance transfer credit card

Using a balance transfer card sounds like a no-brainer, but keep these three things in mind before you apply.

1. You can’t do intra-bank transfers

If your holiday debt is on a Chase credit card, you can’t transfer it to the Chase Slate® (Expired Offer). Credit card issuers use balance transfers to gain new customers, so it doesn’t make sense for them to transfer debt from a card they’re already earning interest on.

2. You may not get approved

Balance transfer credit cards typically require that you have at least good or excellent credit to get approved. That typically means having a TransUnion VantageScore of at least 700. Check your credit before applying, and if your score isn’t high enough, hold off until your score is good enough to get approved.

3. It might not be worth the trouble

Every time you apply for credit, whether you get approved or not, the creditor will do a hard credit check of your credit reports. This inquiry will stay on your report for two years before falling off and can knock a few points off your credit score temporarily.

If you’re planning on paying off your holiday debt in the next few months — perhaps with your tax refund — the minimal savings from doing a balance transfer might not be worth adding another inquiry to your credit report.

The bottom line

If you have holiday debt that you’re trying to pay off, you’re not alone. But instead of making just the minimum payment on your card each month, put a plan in place to pay down your debt faster to save on interest.

If it makes sense, make a balance transfer credit card part of that payoff plan. Check out several balance transfer cards before you apply, though, to make sure you get the one that suits you best. As you do your due diligence, you’ll be able to pay down your debt promptly while saving potentially hundreds of dollars in interest.