Making a Dent in Credit Card Debt

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One steep recession and 10 years later, Americans are once again buried in credit card debt. The latest Federal Reserve figures show that there is now nearly $1.3 trillion in credit card debt outstanding — surpassing the peak reached in 2008. According to CreditCards.com, the average balance owed is $5,839 per cardholder. (This is one time you don’t want to be above average!)

Rising personal debt is a worrisome trend as we enter the holiday shopping season with consumer confidence at the highest levels. How will we pay down this debt? There’s an easy fix if you have the self-discipline to stick to a plan. Just write down this month’s minimum payment, and pay double the minimum. Make that exact same double-minimum payment every month (disregarding the new minimums). And don’t charge another penny.

Using this strategy your balance will be paid off in less than three years. Otherwise, it could take you 30 years to pay off your balance using only the standard minimum monthly payment!

If that’s too draconian for your budget, another strategy is the wise use of a balance transfer card. It is not a “get out of debt free” card, but it does give you breathing room from the high interest rates that make it almost impossible for many people to make a dent in their outstanding debt.

If your credit is still good (meaning you’ve been making at least the minimum payments on time), you can transfer your outstanding balance to a zero percent card that will give you as long as 36 months without adding interest to your balance. That gives you time to dig out of debt – if you use the breathing room to make regular payments.

Sadly, most people don’t use this opportunity wisely. According to a new Balance Transfer Credit Card Report from CompareCards.com, 41 percent of Americans have used a balance transfer card in the past, but four in 10 have failed to pay off the balance during the reduced or free introductory period.

If you’re searching for the “best” balance transfer card, you can compare terms side by side at CompareCards.com. Here are a few things you should be considering:

–Interest rate and duration of low rate on transfers. Search for cards with a zero percent introductory interest rate that lasts at least 12 months (some offer 36 months). Be aware that zero rates for longer periods can come with other costs.

–Balance transfer fees. You may be charged as much as 3 percent or more on the amount you transfer! That adds to your debt burden, so look for a card that doesn’t charge a transfer fee.

–Interest rate after introductory period. The interest rate on any unpaid balance will jump sharply higher after the rate-free period expires. CompareCards.com says the average APR jumps to 19.71 percent, with some as high as 26.9 percent. While a range of rates must be disclosed, you won’t know your exact “rebound rate” until you successfully apply for the card.

–Maximum transfer amounts. You may have more debt than you can transfer. Or you may be limited to a short period of time in which you can transfer balances from multiple accounts. Check for these limitations to plan your overall strategy.

Treat a balance transfer as a “window” of opportunity, not an escape hatch from debt. Banks pick and choose among the balance transfer applications, hoping to build a longer term relationship with potential clients. The survey shows that 69 percent of consumers with household incomes of $100,000 or higher have used a balance transfer card at least once, and nearly half have done so multiple times.

The banks have figured out that these days an offer of a zero percent interest balance transfer is cheaper than a new toaster in attracting long-term clients! But with rates rising, these deals may not be so generous in the future. This is the time to review your credit card debt — before you continue your holiday shopping.