Can I Put All My Debt on a Zero Interest Credit Card?

The other day a friend of mine was inquiring about paying off credit card debt using a zero interest credit card.

She had moved all of her debt from a high interest credit card to a zero interest credit card and had completely paid off that debt very quickly, which was awesome.  She had two other high interest cards and asked me if she should move the debt from those over to the same zero interest card or if she should open a new zero interest credit card. I had to pause a bit before I considered the answer.

First things first.

A zero interest credit card is a credit card that has zero interest for a certain amount of time, after which the interest rate spikes up, usually higher than a ‘regular’ credit card. If you’re really diligent about paying off a zero interest credit card quickly, you can pay it off before the high interest rate kicks in.

I wrote about these types of cards before in my post: Is a 0% Interest Credit Card Just a Blatant Lie In a Pretty Package?

Zero interest credit cards have their pros and cons, and both are pretty simple. In a nutshell:

Pro: You can pay off debt quicker when you have no interest gathering on the debt while it’s on a zero percent interest credit card.

Con: If you don’t pay off your debt fast enough on aforementioned card, you’ll have a hell of a LOT of interest gathering on that debt. 

So, let’s back to my friend’s question about whether or not she should move multiple balances to the same zero interest card. Here are the facts:

  1. My friend had 3 high interest cards she needed to pay off
  2. She had one zero interest credit card
  3. She had already moved two high interest cards onto the zero interest card and had paid off one card’s debt already. 
  4. In May, the zero interest would turn to VERY HIGH interest, probably around 20+ percent, which is awful. 
  5. She still hadn’t moved the third debt and was wondering if she should move it to the zero percent card or open up a new zero percent card for that last debt.

Here’s my answer, with additional questions, in 3 parts:

  1. Can you beat the balance transfer fee? Some zero percent interest cards have a 3 percent balance transfer fee. If your zero interest card has this fee, you have to calculate whether that 3% is less or more than the interest you will end up paying on the original card before your debt is paid off. For example, if you have $1000 in debt on a card and move it to a zero percent interest card with a 3% balance transfer fee, you’d have to pay $30 to transfer the debt. If you would end up paying less than $30 in interest on the original card before you paid off the $1000, it wouldn’t be worth it. If you had a zero percent interest card with no transfer fee (they do exist), you’re fine and wouldn’t have to make this calculation. If
  2. Can you pay off the second AND third debt by the time the zero percent interest expires? In this case, if she could pay off all debts before May, her interest rate would stay at zero percent and she would get all the pros out of the card with none of the cons.
  3. Can you put all the debt from various, different cards, on one zero percent card?  This was a question I had to ask myself, and then had to google. I wasn’t sure how things worked with putting multiple debts on one zero percent card. Turns out it’s fine. It’s equally fine to put the debts on different zero percent credit cards (you can open multiple at the same time, depending on your credit score and approval, of course.)

One last MAJOR note: Don’t close the original card after the transfer, unless it has an annual fee that you don’t want to pay. Closing older credit cards hurts your credit score. 

So my friend was able to get all her debt from 3 cards on one zero percent credit card, and is on track to pay everything of by May before the interest goes up. This will save her tons of money in interest in the long run.

Hope this helps you guys understand zero percent credit cards a little better, and wasn’t too complicated. If used wisely, AND QUICKLY, zero percent interest cards can be a great tool to help get you out of debt.

 

 

Advertisements

Really Awesome Credit Bureau Changes You Should Know About

I just wrote an article about credit card myths, and right afterwards, big news broke about some credit bureau changes happening in 31 states in the near future. A lot of the changes will be very helpful to consumers 🙂

Now that you’re in your thirties, make sure you’re keeping your credit report in extra good shape by checking it at least once a year. You can easily check it on a site like http://www.annualcreditreport.com  Errors pop up in credit reports all the time and you want to catch them early before they damage your score. The new rules getting put in place among the credit bureaus should help stop these accidents from happening. Here they are:

  • If there’s an error on your file with one of the three agencies, that agency must notify the others
  • It will now take 180 days for medical debt to appear on your credit report. So if you have medical debt because your insurance is supposed to take care of a bill and things are still processing, the issue will get squared away before doing any credit damage.
  • The bureaus will closely track data furnishers who most often supply disputed info- so if an organization or debt collection agency is being disputed all the time by everyone, credit bureaus will get way more suspicious.
  • The bureaus have to educate consumers on getting access to free credit reports as opposed to paying for promoted credit reports.
  • You’ll get an additional free credit report provided to you if you’ve recently disputed a claim.

Thanks so much! Hope this all gets put into place! 🙂

credit_report_australia_law_change_2014-860x312_c

Standard Deduction vs Itemized Deductions, The Most Common Tax Questions in Your Thirties- Part 2

It’s still tax time! If you finished your taxes already, kudos to you!

For everyone else, lets get some more questions answered..(and for the record, I haven’t finished mine either, so don’t worry).  🙂

Also, if you didn’t get to read Part 1 of Tax Questions Answered, click here.

I do my parents’ taxes every year and just finished their 2014 filing this weekend. However, I recently realized that even though they always take the standard deduction, I still spend time calculating their itemized charitable contributions- even though that particular type of contribution (charitable) doesn’t factor in on your taxes if you take the standard deduction.

If the paragraph above made no sense to you, let me clarify below. We’ll start with some terminology I feel like I should know all of this now that I’m thirty, but some of it I actually had to dig into a bit, so I’ll explain it pretty piecemeal here:

Gross Income= What you make in a year, including EVERYTHING, from Jan 1 to Dec 31 (you, of course, probably already know this one).

Adjusted Gross Income= Your taxable income after you subtract certain ADJUSTMENTS but before you subtract either the Standard Deduction or your Itemized Deductions (you can only subtract one or the other of those two types of deductions)).

Standard Deduction= An amount you can always subtract from the gross income you’ll be taxed on, as long as you don’t subtract your itemized deductions instead. The standard deduction for the 2014 tax year is:

  • Single or married filing separately: $6,300
  • Married filing jointly: $12,600
  • Head of household: $9,250

Itemized Deduction (not the standard deduction kind)= These are deductions you can take if you decide NOT to take the standard deduction. These include but aren’t limited to: medical and dental expenses that exceed 7.5% of your AGI (Adjusted Gross Income), property taxes, your state and local income or sales taxes, charitable donations you make, work related travel, union dues. 

So if you’re trying to decide whether to take the standard deduction or itemize your deductions, you want to basically choose whichever one is larger.

Here’s an example: Let’s say you’re unmarried with no children and make $50,000…And you can itemize these deductions:

  1. $1000 in work related unreimbursed travel
  2. $500 in medical expenses
  3. $400 in state and local taxes
  4. $100 in clothes donated to goodwill

This equals $2000 in Itemized donations. If you chose to itemize deductions, you’ll be taxed on $48,000 (50,000-$2000). If you took the standard deduction, you’ll be taxed on $43,700 ($50,000-$6,300). So you’d want to take the standard deduction for sure, because you want to be taxed on less income and pay less money 🙂

I’ll stop here for now, but hope this was somewhat helpful! Next time, I’ll talk about Adjustments and Credits, and how they can reduce your tax bill even further!

As always, please let me know if you have any questions or anything to add. Thanks!

Tax-Deductions1

%d bloggers like this: