The holidays are fast approaching.
If you're starting to feel the financial squeeze as your credit card balance swells, you're not alone. Americans owe close to $1 trillion in credit card debt.
While some of us will be able to pay down our credit card statement at the end of the month, others will need to maintain a balance, until we refill our coffers.
That's OK, so long as you have a plan to carry that balance interest free.
The cheapest and fastest way to pay off credit card debt is with a balance transfer credit card. It's cheaper than a line of credit and cheaper than a consumer loan.
No matter what, a balance transfer will be better than doing nothing.
With typical credit card interest rates ranging from 19 percent to 28 percent on purchases, doing nothing will quickly cost you a tiny fortune.
A 0 percent balance transfer, on the other hand, will buy you time.
Balance transfers are simple.
Your low-interest balance transfer card pays off the debts of your high-interest credit cards. You then owe the sum of your old debts on your new balance transfer card at a much lower interest rate.
Typically, you can get balance transfer offers for as low as 0 percent for 12 months or more. That ends up being an interest holiday for an entire year.
Aside from a low interest rate, the other significant advantage of a 0 percent balance transfer credit card is the ability to consolidate multiple credit card debts on to one credit card, with one monthly payment.
Having three to four credit cards that you have to pay each and every month dramatically increases the odds of a late payment.
Nothing's worse than buying a pair of jeans for $59 on a store credit card, only to get assessed a $30 late fee.
Consolidating all of your credit card balances on to one card is key to simplification.
When considering which balance transfer credit card to get, there are three things to look out for: a 0 percent promotional rate, a long promotional term and a low balance transfer fee.
There are plenty of 0 percent balance transfer credit cards in the marketplace. What you'll want to do is get one that offers 0 percent for the longest period of time, and 12 to 15 months should be a target.
Lastly, read the fine print. While many credit card issuers advertise 0 percent rates, they could be charging you a transfer fee as high as 3 percent right off the bat.
That essentially becomes a 3 percent balance transfer offer. Look for an offer that charges a balance transfer fee of, at most, 1 percent.
There are a few rules of thumb to live by when it comes to balance transfers.
First, make more than the minimum monthly payment.
Even though you're not being charged interest, don't sit on your laurels. This is your chance to get ahead of your debt.
Try to target paying off your entire balance by the end of the balance transfer promotional period. Simply take your balance and divide it by the number of months of your promotional period.
That's how much you should target repaying every month.
Second, don't do a balance transfer on to the same credit card you make purchases on. Some of the best cashback credit cards will offer you a balance transfer.
It's great for the banks, horrible for you. The reason for this is, many credit cards — and this may depend on whether you're in the United States, Canada or the UK — allocate your monthly payment to the low interest credit card first.
As a result, when you make a new purchase, you won't be able to pay it off until you're low-interest balance is paid off in full.
However, during the interim, your new purchase is being charged at the higher purchase interest rate, destroying the cashback value you earned in the first place.
The solution is to simply keep a separate card for purchases and balance transfers.
Lastly, never be late.
If you're late, even by an hour, you'll lose your 0 percent promotional rate forever. Not only that, but your balance will also likely go to a special post promotional interest rate that's even higher than the purchases interest rate.
So, if you're feeling a little squeezed, get yourself an interest holiday with a balance transfer card, and exhale!