While the holidays can be a bittersweet time for anyone, they can be especially tough on military families, particularly if a loved one is deployed for active duty oversees. The last thing you need in such a situation is the stress of debt, but since the average holiday shopper is expected to drop $750 -$850 on gifts, according to numerous projections, an end-of-month balance might be unavoidable. The next best thing is to make the right choice when it comes to financing.
The first thing you need to understand is that choosing a financing option involves more than simply finding the lowest interest rate for the longest period of time. That’s a good start, but as you’ll see below, even a pair of seemingly identical 0% offers can have terms so different that one will save you hundreds of dollars while the other actually forces you to pay 27 times more interest than you would ordinarily.
The Best Financing Offers
The rebounding economy and a desire to insulate operations from future downturns have led credit card companies to roll out the red carpet for people with excellent credit, and they’re currently offering unprecedented initial rewards bonuses and 0% introductory interest rates to new customers who fit that description. While you don’t need to be told how helpful it would be to score a few hundred extra dollars or more this holiday season from a year without interest, you might be surprised to find out that roughly half of all consumers have “excellent credit” – FICO Scores of 720 or above. In other words, you might be in a better position to take advantage of one of the following offers, which Card Hub lists among the best credit cards for holiday shopping, than you originally thought:
- Chase’s Slate Card offers 0% on balance transfers for 15 months and doesn’t charge a balance transfer fee. If you’re like the average household and have a $6,700 credit card balance that will soon be inflated by hundreds in holiday expenses, the Slate Card stands to save you around $1,000 while helping you become debt free months sooner.
- Citi’s Diamond Preferred Card gives you 18 months to pay off new purchases before an 11.99% - 21.99% regular interest rate takes effect. Supposing you spend $800 on gifts, this card will enable you to escape debt without incurring any interest by paying as little as $45 per month.
- The Chase Sapphire Preferred Card provides cardholders who charge at least $3,000 during the initial three months 40,000 bonus points redeemable for a $400 statement credit. While this offer doesn’t technically constitute financing, an extra $400 could bring about the same result as an attractive financing deal: a $0 balance with minimal interest costs.
Before you apply for any of these cards, it’s very important that you consult a credit card calculator in order to determine not only which card stands to save you the most money, but also what monthly payments you’ll have to make in order to eradicate your balance before interest robs you of your savings.
The Worst Financing Offers
It’s not all good when it comes to holiday financing offers, however. Card Hub recently analyzed financing offers from the nation’s largest retail establishments, and more than 60% of those that make financing available offer potentially harmful deferred interest plans. Such plans provide an interest-free introductory period, much like the aforementioned 0% credit cards, but rather than assessing interest on whatever balance remains when the intro period concludes, interest will be retroactively applied to the original balance if you don’t completely pay off what you owe during that time.
Deferred interest payment plans are therefore quite risky because a minor slip up can effectively turn interest-free financing into unexpected costs, which can then have a domino effect of negative repercussions on your finances. Card Hub’s study identified 23 major retailers – including Amazon, Apple, Dell, Best Buy, and Wal-Mart – that offer such plans, but if you really want to play it safe you’ll avoid all retailer-specific financing offers this holiday season, even if they’re associated with co-branded credit cards.
At the end of the day, no one wants to deal with the stress and added financial burden of debt for longer than they have to. But we also want to make sure that our families have the happiest holidays possible. A great many of us, therefore, end up financing seasonal expenses, judging from the $44.3 billion in credit card debt US consumers incurred during the final three months of 2011 and the $29.9 billion we racked up during the fourth quarter of 2010. This trend will undoubtedly continue this year, but as long as we can pay off what we spend before it’s inflated by interest, as well as manage to live within our financial means the rest of the year, we’ll be just fine.