Published on January 19, 2022
The holidays are over, the decorations have been put away, and it’s time for life to get back to normal.
Normal, with a few more bills.
Statistically, the average household was expected to spend almost $900 on gifts during the holidays in 2021. Then there are the little extras like food, decorations, perhaps transportation for a family member. The cost for the holidays certainly did add up for many families.
Did you put a lot of your holiday spending on credit cards this year? Are the bills starting to roll in? Remember, the more you added to an existing balance, the more your minimum payment will increase each month. As it does, it also means more of your monthly payment is being applied to interest rather than your balance.
What does this really mean? It's going to cost more and take longer to pay off your holiday shopping.
Want a solution to pay down that debt?
Consider transferring your high-interest credit card balances to a lower-interest card. The savings can be considerable, and it will help you pay off your balance even quicker. Here are a couple of examples using a credit card interest calculator.
Paying off $1,000 in debt on a card that charges an APR* of 17%. Your $1,000 holiday expenses will cost you $1,085.95 if you pay $100 per month for 11 months. Just in time to start buying next year’s gifts. This is assuming you had a zero balance on your card and you don’t put anything else on it. Remember, many cards are 20% and store credit cards can be 25% or even higher.
You splurged, spent $3,000, and used a store credit card at 25%. You’ve added $1,756.85 to your debt in interest if you stick to $100 payment per month, and it will take 48 months (that’s 4 years!) to pay off. If you tighten your budget and put $200 per month toward that card, it will still cost you $634 in interest and take 19 months to pay off. That means you’ll still be paying off last year’s gift when the 2022 holidays are well over and you’re planning 2023 holiday spending.
Transfer your $3,000 splurge to a lower interest credit card. It’s easy to see that transferring that $3,000 balance to a credit card that has a rate of 8.49% while paying $200 per month is a good idea. It will reduce your total interest to $160 and take 16 months to pay off. Bump your payment to $300 per month and you can reduce your interest to $122.41 and be done paying off the debt in 11 months. That’s a noticeable savings.
Do the math yourself. Read the fine print. Find a financial calculator (we have several on our website) that lets you crunch some numbers and see what makes the most sense for your budget. Then look around for a balance transfer option. Some offer zero percent interest for a certain number of months before a standard rate applies. But read the details carefully. Often, if you don’t pay off the transferred amount, a default rate applies, and that can be higher than the standard rate. Also, many credit cards charge a balance transfer fee, which is usually a percentage of the balance you’re transferring. Suddenly, you’ve actually added to your debit before you can start taking advantage of the offer.
Take the time, make the effort, and then get rid of that high-interest debt. You’ll sleep better and enjoy your life more knowing that you’re doing all you can to reduce your debt. While you’re at it, set up a holiday fund so you’re ready for the next holiday season. You can open a Choice Goals sub-account right in your savings account and make monthly deposits directly into that account. You can call the account “No Debt 2022” to remind you what you’re saving for.
At Community Choice, we never charge a fee to transfer your balances. Our competitive rates can help you eliminate your debt and get your finances back on track so you can achieve the life you desire. We even make it easy to manage your balance and make payments. Check out our credit card options here. Want to know more? Give us a call at 877.243.2528 and one of our specialists can help you decide which card is right for you.
*Annual Percentage Rate