Credit cards are incredibly useful. They give people financial flexibility to cover unexpected costs. However, many people fall into a habit of spending more on credit than they can actually afford. It doesn’t take very long for credit card debt to spiral out of control.
Quite a few credit cards have interest rates that are higher than 20%, meaning that the interest alone owed on an account will add up rapidly. Many people with high credit card balances often continually promise themselves that they will pay it down in the next few months. However, they may fail to do so while instead continuing to build a higher balance by using the card.
A new credit card offer or an increased credit limit might come with an offer for a credit card balance transfer. Despite how tempting such arrangements may initially seem, they frequently lead to worse financial challenges.
There are often hidden costs for a balance transfer
There is nothing automatically wrong with taking advantage of a low interest rate by transferring a balance from one account to another. The biggest overall issue with a credit card balance transfer is the cost the company will assess.
Specifically, many balance transfers incur a fee, which might be a percentage of the transferred amount. While there may be a zero-interest or low-interest introductory offer, people would need to make very aggressive payments to repay what they owe during that promotional period. If they fail to pay the balance in full during that time, then a very high interest rate may apply to the remaining balance.
Many times, the company will retroactively apply that high interest rate from the date of the initial transfer, meaning that someone will suddenly have hundreds of dollars of interest due all at once. Additionally, a balance transfer will leave more available credit on the account that previously had a high balance. People may then continue spending, leading to a greater overall total debt load.
Although it may take longer and involve more paperwork, filing for personal bankruptcy can be a more effective solution for credit card debt than transferring the balance owed from one credit card to another. Pursuing personal bankruptcy can be a permanent solution to credit card debt instead of simply changing the party that receives the payments for an original balance.
