Should You Use a Balance Transfer to Consolidate Debt?
A balance transfer is one of the debt management techniques that experts recommend to people who are financially distressed. Although it is an attractive option for some, other people will be better served filing for bankruptcy and wiping out the debt.
What is a Balance Transfer?
A balance transfer is a particular type of loan consolidation using a credit card. Let’s say you have two credit cards, each with a $2,000 balance. In totally, you owe $4,000.
You can open a new credit card and transfer the balances onto this new card. Typically, balance transfer credit cards come with teaser 0% rates that last for 12-18 months typically. You will pay a small balance transfer fee (3-5%) to transfer the debt onto the new card. So long as you pay off the entire debt before the end of the teaser rate, you can save a lot in interest.
When Does a Balance Transfer Make Sense?
A balance transfer can make sense if the following circumstances apply:
- You can find a balance transfer card with a high enough limit that lets you transfer most or all of your debt. For example, you might have $20,000 in debt spread out across many cards. If you can only get a balance transfer offer for $5,000, then that only helps you a little.
- You qualify for a balance transfer card. Generally, consumers need a fairly high credit score—usually over 680. If you have bad credit, you will not qualify for a card.
- You can pay off the debt before the end of the low-interest period. If you can’t, the remaining balance will be subject to a higher interest rate. With some cards, interest will be charged retroactively to the entire balance you transferred, even if you have paid some of it off.
- You are disciplined. Because you are charged 0% interest, your monthly payments on your debt should fall dramatically. This frees up money, which you should use to pay down debt quickly. If you will be tempted to take on more debt, then a balance transfer is not for you.
If the above circumstances do not apply to you, then you should carefully consider other options. For example, you might be able to get a personal loan which you can use for debt consolidation, or you might set up a debt management plan.
Some debtors will do anything to avoid bankruptcy, but you should still consider it as an option. If your debt has simply become unmanageable, then trying to use debt consolidation techniques could only cause more stress—and possible leave you even more indebted than before.
With a Chapter 7 bankruptcy, for example, you can wipe out unsecured debts like credit card debt, medical debt, personal loans, and some court judgments. The entire process can only take a few months from start to finish, affording you peace of mind.
Talk with a Plantation Bankruptcy Lawyer
If you would like to discuss whether a bankruptcy is the right way to manage your debt, call a Plantation bankruptcy attorney at Nowack & Olson today, 888-813-4737. Our initial consultations are free and confidential.