People struggling with credit card debt may look for a variety of different solutions. Those with high balances on some of their accounts might receive offers for balance transfers. Some people even open new lines of credit because a company has an attractive balance transfer offer.
A balance transfer may advertise a low interest rate or possibly a zero-interest transfer. While that may seem like a way to address slowly-accumulating credit card debt, the reality is that balance transfers frequently make credit card debt worse. Balance transfers do not resolve underlying debt and often are associated with costs that people don’t understand until it is too late.
There is probably a fee for the transfer
The fine print for a credit card balance transfer may include many hidden expenses. Frequently, credit card companies charge a fee for a balance transfer. In some cases, it is a flat fee. However, it is quite common to charge a percentage of the amount transferred for that service. As soon as the cardholder transfers the balance, the amount that they owe increases because it now includes the fee charged by the company offering the transfer.
Low-interest offers can be deceptive
Credit cards charge some of the highest interest rates allowed under the law. A balance transfer that offers a low interest rate instead of a rate over 20%, may seem very attractive. There are usually conditions attached to that low interest rate. Specifically, the cardholder transferring the balance likely only has a set window of time in which they can pay off the balance.
If they fail to pay what they transferred in full by the end of the promotional period, the credit card company may begin assessing interest at the standard rate for that card. In fact, the chances are good that the interest accumulates throughout the promotional period and all comes due at once when the promotional period expires.
Cardholders who transfer to balance may find themselves facing hundreds of dollars in interest all at once, which can make it increasingly difficult for them to pay down the balance they owe on the account. Balance transfers are a short-term solution for a symptom of a financial problem. They do not actually help resolve the financial pressure on the cardholder. A personal bankruptcy, on the other hand, can help eliminate credit card debt and aggressive collection efforts.
Looking into solutions that address an underlying problem with debt can be a better option than simply transferring an amount owed from one creditor to another.