Bankruptcy is one of the most effective debt resolution tools, but many people treat it as their last option. They may attempt every alternative solution to help them take control of their debts before they seriously consider bankruptcy.
A balance transfer is one of the more popular alternative debt solutions people consider when they fall behind on their financial obligations. Credit cards sometimes allow cardholders to transfer the balance from a different credit card. Such transfers may qualify for promotional interest rates as low as 0%. Unfortunately, many people transfer credit card balances only to end up trapped in a worsening cycle of personal debt.
The trick behind balance transfers
The reason that credit card balance transfers don’t help people is that balance transfers only move the debt from one creditor to another. They do not eliminate someone’s financial obligations. In fact, balance transfers often lead to surprise expenses.
Oftentimes, the fine print on a balance transfer offer includes a fee for the service. Someone may pay a set amount or a certain percentage of the balance they transfer for the privilege of paying one company for the debt accrued with another lender.
Additionally, balance transfer offers often come with a tempting initial interest rate followed by a much higher interest rate later. If someone does not pay the full balance in a certain amount of time, the company may suddenly assess months of interest going back to the date of the initial transfer.
Bankruptcy is often a better solution than a balance transfer because it eliminates someone’s debt instead of moving it to another lender and adding more fees to the balance owed. At the end of the day, understanding the shortcomings of different potential debt solutions may help people evaluate their options when they cannot fully repay what they owe.
