A question we hear time and time again from our clients that are overburdened by debt is this:
Should I transfer my balance?
Credit card balance transfers can sometimes be a good thing, but more often can cause some larger issues down the road. Today, we give you the honest answer we tell clients that ask, should I transfer my balance?
The Benefits of a Balance Transfer
The biggest benefit of transferring your credit card balance is that it simplifies your financial life. When you only have one major credit card payment to make every month, it is easier for some people to ensure that payments are made on time—and that they meet the minimum payment every month. Consolidating your credit card debt is tempting for this very reason: you have fewer hassles to worry about, which can sometimes eliminate a part of the stress you face from the financial hardship of your debt burden.
The other big benefit offered by a credit transfer is that you can usually get a lower rate, especially in the short term. If you are dedicated to paying off your debt in the next year, you may be able to eliminate or lower the interest you would normally have to pay on the current balance during the process. This can save you serious money as you pay down the debt.
The Pitfalls of a Balance Transfer
While a balance transfer to a lower rate hypothetically could save you a lot of money, this isn’t always the case. For one thing, there are almost always fees that will be tacked onto the balance transfer right away. Many people forget to calculate this into the cost-benefit equation and discover that they cannot afford the transfer itself. In addition, many people try to “fully take advantage of” the lower interest rate by making new purchases on the new card.
These purchases can add up, leaving you in an even deeper hole than you expected. For those people who did not read the fine print, this can be especially bad, since in many cases the low rate only applies to balance transfers. Not only will you immediately pay a higher interest than expected on new purchases, but also your payments on the card will automatically go towards new purchases, meaning that the old debt will linger until the new purchases are taken care of.
In addition, your new card is likely to have been issued according to a lower credit score than the one where you originally acquired the debt. Because of this, you are likely to face a higher rate once the introductory period ends. Unless you can fully pay off the balance during the introductory period, you may face even higher interest costs in the long term. Also, a lower credit score usually means that you will face a smaller credit limit. If the new issuer won’t offer a large enough credit line for you to transfer your entire balance, you face much more complicated rates and calculations to pay down the debt effectively.
Your Personal Situation Matters
In the end, your personal situation matters more than the hypotheticals. You can go online and find many balance transfer calculators that will help you work out whether a balance transfer can actually save you money—or if it will ultimately just hurt your credit.
If you are really suffering from debts that you cannot handle or effectively pay off, you are unlikely to be able to use a balance transfer as a long-term solution. When you need a fresh financial start, it can often help to consider more permanent solutions, such as bankruptcy.
To explore all your options for dealing with your debt, seek the advice of an experienced Cleveland consumer debt attorney. Call us today at Luftman, Heck & Associates at (216) 586-6600 for a free consultation on your case. We are prepared to work with you to find the best solution for your debt, whether it is a balance transfer or something else entirely.