(Corrects typographical error in company name NextAdvisor, paragraph 10) By Beth Pinsker NEW YORK, Dec 13 (Reuters) - When the U.S. Federal Reserve raises interest rates, as it did on Wednesday by a quarter-percentage point, the first pinch consumers usually feel is higher interest rates on credit cards.
Zero-interest balance transfers can offer respite from higher credit card rates, if used properly. These cards allow a person with debt (and a decent credit score) to move their balance to a new card and have no interest for an introductory period. Today's offers typically top out at 21 months.
"I would jump on it sooner rather than later," said Greg McBride, chief financial analyst for Bankrate.com, whose expectation of three more rate hikes by the Fed in 2018 is in line with the Fed's own projection.
That is because annual percentage rates on credit cards are currently averaging over 16 percent, and outstanding credit card debt is about to hit $1 trillion, said Jill Gonzalez, senior analyst for Wallethub.com, a personal finance site. The average U.S. household has about $8,100 in credit card debt, which can cost a consumer over $1,000 a year in fees and finance charges.
While it sounds like a simple plan, people in debt do not necessarily have all the facts that could help them to make balance transfers happen. Comparecards.com, a division of LendingTree, surveyed 1,000 Americans with credit card debt in September and found that half did not take out balance transfers because they did not understand the process.
If you want to start the new year with some financial breathing room, here are the steps you need to take.
* PICK A DEAL Most zero-percent cards charge a 3 to 5 percent fee for a balance transfer. But some currently offer this service for no fee - like BankAmericard's basic card and Chase's Slate. Both cards feature a zero-percent interest rate for 15 months, said Brian Karimzad, vice president of research for Comparecards.com.
There are online calculators to help you decide which card is right for you, such as the one at NextAdvisor.com (www.nextadvisor.com/credit_cards/balance_transfer.php).
But in general, the math is generally simple enough to do in your head.
If you are transferring $10,000, for example, and the balance transfer fee is 3 percent, you would pay $300. Your new balance will be $10,300 and you have up to 21 months to pay it down, said Jocelyn Baird, an associate editor at NextAdvisor.
If you wanted to rid yourself of this debt by the end of that term, pay $490 a month.
Keep in mind that if you choose a card with no fee but a shorter term, you may not be able to pay off the entire debt by the end of the zero rate period. And if you do not pay off the balance before the zero-rate period ends, the interest payments could end up exceeding the amount of the transfer fee.