Credit card balance transfer has become a quite common debt relief option among all the modest debtors in our country. People started to understand the efficacy of transferring debts from one account to another, long before credit cards came into fashion. Back then, personal loans and payday loans dominated the scene.
So, what people used to do was borrow money from Mr. A to pay off Mr. X, Y, and Z. And then, slowly pay off Mr. A, over time. The same thing is about credit card balance transfers.
Take out a new card and bring all the balances from your existing credit card to this new card. Once the transfer is successfully made, you will have only one card to pay off, and enjoy a median interest rate against all your credit cards.
But, it can be dangerous. A balance transfer is no joke, and banks encourage you to do so, as they see a big profit margin in them. You just might get entangled in this transfer chain forever, if you don’t know how to make it a ‘once and for all’ affair.
Here’s how you might never exit the balance transfer chain:
Banks and financial institutions promote balance transfers to gain money from you. It’s not that they totally want you to become debt-free. When you take out a balance transfer card to pay off your other cards, you are letting the new bank have a new income trail.
Most banks charge a balance transfer fee. And, generally, debtors opt for this method when they have too much debt to pay off. So, chances are, the majority of the debtors doing the transfer, won’t be able to pay off this new card either.
Even if you do manage to pay off this new card, it won’t be anytime soon, and not within the flashing 0% interest rate introductory period. This 0% APR introductory phase is a big-time marketing strategy, that the banks use to sell balance transfer cards. They know very well that people will get false hopes to pay off their due balances at a 0% interest rate.
Now, just imagine if you, by any chance, are unable to pay off this new card within the introductory period!! There are high probabilities that this card will be facing a brand new hiked up interest charge over a large outstanding balance! You may ask if you can again transfer this balance to a new card. But for how long, will you go on like this?
Plus, what guarantees are there that you won’t be using your old credit card again, within this transfer period?? Ultimately, you are getting trapped and might never just escape this whole jeopardy that the big financial institutions lay down for us. Even if you say that you will close your old credit card after you have transferred the balance, then you will also be making another grave mistake.
Closing your old credit account is not a good move for your credit health:
The moment you close your old credit card, the credit history that you have built up to date gets wiped away. At least something of that sort. And, once it gets cleared, you have to build your credit history all over again. Now, this takes time!
A washed away credit history will have a huge impact on your credit score. It’s not impossible to see some 200 points drop at times if all you were having to date are credit cards in your name. A diminished credit report and a burnt-out credit score is a serious condition. You won’t be qualifying for good loans or other credit cards so seamlessly!
A well-done balance transfer, however, still has the power to save you from debts. But for that, you need proper help and guidance! Consult a lawyer, or someone whom you can trust, who is in the finance industry.
Don’t get induced by the exciting balance transfer offers you see everywhere. I would still say it’s better to avoid balance transfers if possible, rather deal with your existing credit cards tactfully. At times, it’s far better to stick to what you’ve got, than losing yourself completely in the search of something that has no guarantee of becoming yours.