Julien L. Balmer

The 3-Step Guide To Paying Off Your Holiday Credit Card Debt

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There's no more expensive time of year than the holiday season.

After the euphoria of gifts, dinners and vacations, a few of us may be left with upsetting surprises on our credit card statements.

But fear not: There are some ways you can reduce your credit card balance cheaply and quickly.

Below you will find a highly effective strategy that does both without hurting your credit.

It takes advantage of balance transfer promotions created by credit card issuers intended to lure your business.

It's fast, easy and works exceptionally well (as long as you avoid the land mines).

Here are three steps you should take to lower your holiday credit card debt:

1. Use 0 percent balance transfers to stop paying interest on your balances.

Whether you have one or more credit cards carrying a balance, the first thing to do is stop paying interest.

With interest rates as high as 30 percent, you'll never get off the debt treadmill until your monthly payments start paying down your balance as opposed to interest.

The most effective way to do this is to get a credit card with a 0 percent interest rate balance transfer offer.

Don't settle for anything less than 12 months, but sometimes, you may even be able to find offers as long as 24 months, depending on the promos in market.

That means you'll get a one- to two-year interest holiday on your transferred balances.

Think of the impact.

If you made a fixed payment of $420 on a $10,000 balance with a 21 percent interest rate, $175 would go toward interest, and $245 would go toward the principle.

You'd be paying $3,038 in interest over only 31 months.

Getting a 0 percent rate means 100 percent of your monthly payment will be going toward your principle.

Finally, you'll be attacking the source of the problem, not the symptom.

2. Eliminate your balance during the 0 percent promo period.

Now that you've transferred your balances and have stopped the interest charges, it's time to really put a dent in your debt.

Here's how you do it.

Make the highest monthly payment you can that allows you to be debt free by the end of the promotional period.

If we were to continue making payments of $420 per month on our $10,000 balance, it would take us 24 months to become debt free, as opposed to 31 months.

That means you would save $3,038 in interest charges, and you would be debt free seven months sooner.

3. Rinse, wash and repeat.

Let's say you can't make the monthly payment required to pay down your debt during the promotional period.

In that case, make the highest monthly payment you can afford.

Then, prior to the expiry of the promotional period, find another 0 percent balance transfer credit card and transfer your balance once again.

Rinse, wash and repeat until your balance is paid for, interest free.

This strategy is called balance surfing.

In conclusion, watch out for the land mines.

Whether you have a credit card balance in the US or UK, or you're looking for a balance transfer credit card in Canada, there is no more effective way to reduce your credit card debt than taking advantage of 0 percent rates.

That said, we have a few words of advice before you begin your journey.

First, never be late.

Once you're late, the issuer reserves the right to eliminate your 0 percent promotional offer, which means you'll start paying the regular interest rate once again.

Second, to help you make your payments on time, set up your credit card for pre-authorized debits, so that you pay the issuer every month automatically.

This will keep you disciplined, and you'll avoid any unintended late payments.

Lastly, don't make any additional purchases on your balance transfer credit card.

It may end up costing you a fortune.

Depending on your credit card, those new purchases will be made at a much higher purchase interest rate, as opposed to your balance transfer rate.

Instead, make new purchases on a separate credit card, and if need be, transfer the balances from that card to your 0 percent balance transfer card.

Avoid borrowing if you can, and if you have to borrow, never borrow more than you can afford to pay back.

Enjoy an interest-free 2016!