Are You Headed for a Balance Transfer Disaster?
Balance transfer credit cards are meant to be a tool credit card debtors can use to eliminate debt more effectively. Unfortunately many consumers miss the point of the balance transfer benefit of credit cards and end up in more trouble than they started with.
If you have a balance transfer credit card for the purpose of eliminating other credit card debts, there are some big red flags to look for to ensure you are not using your cards in the wrong way. While the cards can be tools to benefit the card holder, they can also be a temptation too strong to resist.
Here are some consumer red flags to watch out for and questions that need to be asked when considering or using a balance transfer credit card:
Can I Get Approved?
This is an important first question because people who are having problems meeting their financial obligations may not be credit worthy enough to get approved for a balance transfer card. If you are counting on this strategy as your sole debt relief tool, you really need to check out your credit standing and consider your other options for debt relief.
Is It a Viable Option?
You may get approved for a balance transfer credit card but the credit limit available is much lower than what you need to effectively consolidate other debts. You have to do the math to see if what you are being offered can still be used to eliminate a portion of your debt effectively. For instance, if you have a $2000 credit limit and $5000 worth of existing credit card debt, it may not make sense to add another credit card into the situation.
Watch the Temptation
If you do work out a balance transfer situation that consolidates all of your existing credit card debts to one card, make sure you are capable of resisting the temptation to start spending again once other cards are zeroed out. You should first established your budget guidelines and make sure money is allocated to your financial obligations. Whatever is ‘left over’ because of the consolidation of bills should be banked for savings goals.
Can I Do It?
Every debt relief effort needs to start with a plan. If you don’t have one before you start transferring balances you may soon find it is hard to make ends meet again. Again, a budget is an important first step but you also need to make sure you resist the temptation to pay only the minimum on your new card, since it may be lower than your current payments. Remember, if you do not eliminate the debt on the new balance transfer card before the promotional interest rate ends, you will once again be facing high interest rates, so focus on paying as much as you can while your rate is at 0%.
Change of Spending Habits
If you have used a balance transfer card in the past to eliminate other credit card debt at a lower interest rate, it should be a once-and-done situation. If you find that you are once again facing debt issues thanks to credit card spending, you might want to consider another option for paying off your debts. Starting a cycle of spending, transferring balances, paying off debts, and spending some more can lead to a lifetime of debt burdens that may one day get out of control.
Ultimately the decision to use a balance transfer credit card as a tool for debt elimination is a personal one. You need to weigh the pros and cons of balance transfer cards as well as other debt elimination strategies before committing to the terms and conditions of yet another credit card. Debt is a serious matter to be addressed proactively and for some consumers, relying on another credit card may not be the right choice.
photo by Andres Rueda