Choosing a Credit Card Deal
Credit card offers are probably filling your mailbox daily. Most current offers have introductory rates, along with specials for paying off other high-interest credit card balances. Before you discard these never-ending offers, take a careful look at the terms, as this just might be the right time to get a new credit card.
A popular offer by many lenders now is the indefinite zero percent credit card balance transfer. In other words, the new company will invite you to pay off other cards, and you’ll be charged no interest on your payments for the balance transfers for a set period of time, usually six months to one year. Is this a ploy to get you to take the new card? Of course it is, but sometimes playing along is a good idea.
Suppose you have two credit cards with balances totaling $8,000. If you make a minimum combined monthly payment of $160, and your average interest rate on the two cards is 17.95 percent, you’ll pay back over $20,000 in interest in nearly 40 years.
Now, if you can absorb this debt with a new credit card, offering zero percent for one year, then a better rate of 14.95, look at the impact you have on paying off this debt.
First, in that initial year of paying no interest on the debt, you’ll cut $1,920 off, just paying the old minimum payment of $160 per month. Of course, if you can pay more, do so, as in the first 12 months, everything you pay cuts into the debt. There’s no interest going to the credit card lender.
So, assuming you stick with the minimum, in the second year you’ll owe $6,080. Assuming the new credit card company asks for a minimum payment of two percent each month, your new minimum will go to $121 per month. Now, don’t drop your payment. Continue to pay at least the $160 you were paying.
At your new, lower interest rate, and adding $39 to the new required minimum monthly payment, you will pay off the new credit card debt in just over four years, and you’ll pay only $2,066 in total interest – a savings of over $17,000, if you had stuck with your first two cards and their average interest rate of 17.95 percent.
Remember, if you want to pay off this debt or any credit card debt in a shorter time, just visit the credit card calculators right here at il-odm.org.
If we stick with this model, for example, after the first year of paying zero interest, let’s assume the decision is to pay off the debt in two years. Go to the Payoff Goal calculator at il-odm.org. Enter the remaining $6,080 in the current balance field. Then, put $160 in the current monthly payment field and 14.95 in the current interest rate field. Finally, in the payoff goal field, put 24 months.
You’ll find that in order to pay off your debt in just two years, you only have to pay $294.65 monthly. This might seem high, but it is just $134.65 more than you are currently paying.
So, set a goal, and pay off those credit cards early. Start by finding the right offer for your new credit card.