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Credit card balance transfers often hurt more than they help

On Behalf of | May 21, 2021 | Bankruptcy

Professionals who help others optimize their credit score will often tell people to have multiple lines of credit. Having several different credit cards, store lines of credit, a vehicle loan and student loans will look better than just having one credit card, provided that you maintain them all in good standing.


Whether you just signed up for a new credit card or have received promotional offers from an existing one, a balance transfer might seem like a savvy financial decision. Balance transfers involve arranging for the amount owed on one credit card to transfer over to another.


Doing so gives the feeling of being in control of your finances, but the transfer alone will do little to help your financial circumstances.


Even if the interest rate is lower, there might be a fee

Credit card companies try to talk people into transferring their balances by offering them excellent promotional rates. If you can transfer a balance from a card with an interest rate of more than 20% to a card where the interest will be 5% or even 0%, obviously you could save money by doing that.


You need to look at the fine print closely, however, as credit card companies often don’t give transfers away for free. Instead, they hide how they recoup their costs in the fine print. When you look closely, you may quickly realize that the company will charge you a flat percentage of the balance that you transfer, which might be almost as much as you save in interest.


The promotional rate may only help if you pay the account off quickly

While we’re talking about those “gotcha” terms in the fine print of the credit card balance transfer offer, make sure to look at how long that promotional rate lasts. Often, the reduced interest rate for balance transfers will only be good for a few months or maybe a year.


After that, the rate will go up to the standard rate for balance transfers on that card. In fact, some cards may defer interest on a 0% interest transfer offer and then hit you with hundreds of dollars of interest if you don’t pay the full balance off by the time the promotion ends.


When you have more credit card debt than you can pay off, just shuffling it from one card to another won’t solve the issue. Unlike balance transfers that just moves the debt from one company to another, a bankruptcy discharge of your credit card debt will eliminate the need to make those payments and free up your finances for other needs.