If you have good credit, and the discipline to pay it off before the promotional period ends, go for it
Dear Credit Wise,
Hello, I take a big annual vacation with a friend that costs about $4,000 each, not including airfare. She pays her way, I pay mine. I takes some “chiseling away,” but I always pay it all back before the next trip. I used to pay it back using the vacation company’s eight-month repayment plan, and put the airfare on my credit card. For the past couple years, I’ve been putting the whole trip on my regular credit card, and paying the interest. My question is this: Would it be wise to open up a 0-percent interest rate card each year to charge this vacation to and get the rewards, seeing as I would be completely paying it off by the time the promotional period would be over? Or should I just continue to use my existing credit card for this? Thank you! — Taylor
I am impressed with your planning and ability to pay off your vacation every year. A 0-percent interest card would save you money, since you have been paying interest on your balance every year, whether on your regular card or through the vacation company’s repayment plan. Because you do pay it off before your next trip, you are probably not paying a great deal in interest. Nevertheless, paying nothing would be even better if you can get it, especially if you can get a card that offers rewards as well.
As you know, promotional periods are limited, so while the card would certainly work for your first year, the terms will likely be changed by time you are ready to take your next vacation. In a survey of 100 cards, CreditCards.com’s November 2015 balance transfer survey found the post-promotional rate to be 17.8 percent.
So, yes, this next year, do get a 0-percent balance transfer card, with the best rewards you can find.
But what you asked is whether this is a plan for “each year.”
There, I can only give you a maybe. It may work, but it may not. The key factor will be your credit. If you maintain good credit, and the discipline to pay it off before the promotional period ends, go for it.
Every time you open a new account, your credit reports will reflect that change. I suspect your credit is at least in the “good” category, since you are able to handle this vacation charge year after year. In the credit scoring world, having more credit is good for your score. Just be aware that your reports will show the number of inquiries and new accounts; too many of either can affect your score in a mildly negative way. This could, in turn, affect your ability to get a new card the next time around. If you have excellent credit, it won’t matter much, as good, on-time payments outweigh other factors.
But if you have credit that isn’t so good, don’t do it. You’d enter an endless downward spiral in which you apply for a card, get turned down and take a credit score hit, apply again, take another score hit, and so on.
Whatever you decide to do, I hope you will continue to use your existing credit card as carefully as you have been. I would not suggest you close the account, since older credit is also good for your score. Instead, try to get to the point where you are able to pay your other charges on the card in full each month. This will effectively give you another 0-percent interest card and one whose terms will not expire after a few months. If you pay your card balance in full each month by the due date, you should not incur any interest charges ever. That is a wonderful place to be and I hope you can get to that point.
Be wise with your credit!