Follow these tips to avoid overspending on Prime Day, and learn more about paying down your debt. (iStock)
Prime Day this year is June 21-22, which means Amazon will offer steep discounts on a range of popular products. But think twice before you take out high-interest credit card debt to buy an overpriced robotic vacuum or an instant pot you'll only use a handful of times.
Read on for tips on how to avoid overspending this Prime Day. And if you're struggling with online spending, keep scrolling for three popular ways to pay off credit card debt. You can also visit Credible's online marketplace to compare a variety of financial products for debt consolidation, from balance-transfer credit cards to personal loans.
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Tips for keeping your Prime Day spending in check
Online shopping can be an easy way to run up your credit card balance.
"It doesn’t matter how good the deals are if you are paying 20%+ interest on a credit card balance," said Josh Nelson, a certified financial planner (CFP) based in Loveland, CO. "Don’t spend more than you can pay for right away."
To avoid taking out more debt than you can repay, follow these Prime Day tips:
- Make a list of what you need and set a budget. Amazon posts some of its deals ahead of time on its app, which makes it easier to plan your purchases in advance. Plus, you can add items to a Wish List and set up notifications if an item drops in price.
- Don't give in to marketing gimmicks. Online retailers like Amazon use tactics like scarcity and urgency to make it seem like there are only a certain amount of items available or you only have a small time frame to make a purchase. "Products that are offered for purchase on Amazon Prime Day are mass-produced, and you should be careful to avoid a scarcity mindset," said Cody Garrett, a Pearland, Texas CFP.
- Use price-tracking software. Check the price history of an item you're eyeing using a price-tracking website like Honey. This can let you know if you're really getting a good deal on an item, or if the price was raised shortly before the sale.
- Return items if you have buyers' remorse. It's simple (and free) to return items you don't want by visiting an Amazon locker, UPS Store or Whole Foods. You can sometimes have UPS pick up your item for a small fee.
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3 ways to pay off credit card debt
It's easy to lose track of spending with so many shopping holidays throughout the year. If your credit card balance has gotten out of control after one too many Prime Days, consider the following methods for consolidating credit card debt:
- Take out a credit card consolidation loan
- Use a balance transfer credit card with a 0% APR period
- Enroll in a debt management plan through a credit counselor
1. Take out a credit card consolidation loan
One common way to pay off credit card debt is to take out a personal loan. Personal loans are lump-sum loans with a fixed interest rate that are repaid in monthly installments over a set period of time, typically a few years.
The biggest benefit of consolidating debt with a personal loan is the cost savings. The average interest rate on a two-year personal loan was 9.46% in the first quarter of 2021, according to the Federal Reserve. By contrast, the interest rate on credit card accounts assessed interest was 15.91% in that same time frame.
In addition to lower interest rates, personal loans have fixed rates and monthly payments so the amount you owe always stays the same. Keep an eye out for personal loan fees, such as loan origination fees. And consider that the best personal loan offers are reserved for borrowers with an excellent credit score and a low debt-to-income ratio.
If you decide to pay off debt with a personal loan, shop around with multiple lenders to get the lowest interest rate for your situation. You can compare rates and get prequalified for a credit card consolidation loan on Credible.
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2. Use a balance transfer credit card with a 0% APR period
If you owe a lot of credit card debt but you still have a good credit score, you might consider opening a balance transfer credit card that offers a 0% APR introductory period. This allows you to pay down credit card debt at 0% interest over a set period of time, typically up to 18 months. After that, you'll be charged interest on the remaining balance.
Here are a few things to watch out for when using this debt consolidation method:
- Balance transfer fees. These are typically 3-5% of the total amount being transferred.
- Balance transfer limits. You may have too much debt to transfer onto another card.
- Annual fees. Some credit cards come with annual fees, although not all of them do.
If you're interested in getting a balance transfer credit card, you can compare your options on Credible.
3. Enroll in a debt management plan through a credit counselor
If your credit score is too low to qualify for a personal loan or balance transfer credit card, consider seeking debt relief through a nonprofit credit counselor. These government-accredited agencies can help you pay off your credit cards by enrolling you in a debt management plan (DMP).
Throughout this process, your credit counselor will work with your creditors to come up with a fair repayment plan, and they may even be able to save you money by negotiating lower interest rates. Your first consultation with a credit counselor is typically free, although enrolling in a DMP may come with a small monthly fee.
As you search for credit counseling services, watch out for debt relief scams and for-profit debt settlement companies, which can prey on your financial situation. You can find an accredited nonprofit credit counselor through the National Foundation for Credit Counseling.
Want to learn more before you take out a new personal loan or credit card? Get in touch with an experienced loan officer at Credible who can answer any questions you have about getting out of credit card debt.
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