Household debt across the United States continues to rise, hitting an all-time during the second quarter of 2017. Increased debt by itself isn’t necessarily that concerning – it often goes hand in hand with a growing economy. Much more concerning is the fact that consumers are starting to fall behind on their debts. For the first time since 2009 (back in the heart of the Great Recession), credit card delinquencies are on the rise.
For anyone struggling with a significant amount of credit card debt, a balance transfer may seem like an appealing option. Lately creditors have been trying to make this option even more appealing. As reported in Forbes, creditors are beginning to target new customers through enticing balance transfer offers, including 0 percent introductory APRs, no annual fees, and (most importantly) no balance transfer fees.
If fees and interest charges are a barrier to repaying your credit card debt, these offers probably sound pretty good. So should you consider transferring all of your credit debt to a new account?
A better question might be, “What are you going to do after you’ve transferred your balance?”
A balance transfer alone won’t solve your debt problems, but it can be a very helpful part of your debt repayment strategy. You just have to create that strategy first and make sure you follow through.
Keep in mind that your 0 percent interest rate won’t last forever. It’s a great boost, and can do wonders to help kickstart your repayment, but if you don’t have your balance repaid by the time the introductory offer ends, you’ll go back to being charged interest (and the new rate may not be that favorable).
Before agreeing to a balance transfer, make sure you understand the features of the new card, especially what happens after the introductory period is over.
Don’t just buy time
If you’re considering a balance transfer more as a means of buying yourself time rather than actually paying off your debts in full, you may be dealing with issues a balance transfer can’t help. In fact, simply moving your debts from one card to another can create a separate set of problems – in particular, a potential hit to your credit due to opening multiple new accounts in a short period of time.
Keep in mind, creditors are offering these perks with the thought that many, if not most new card holders won’t be able to pay off their transferred debt before the introductory period runs out. Since these cards are geared so heavily towards balance transfers, there often aren’t many perks (like cash back rewards) past the introductory offer and lack of an annual fee.
If you’re struggling with your credit card debt, review all of your options ahead of time, measuring them against your goals and where you’d like to see yourself in a year or more. If you need help reviewing your finances and understanding your options, consider speaking with a certified debt and budget counselor. They can provide expert advice and a helpful perspective. Plus, budget counseling is free!
Learn how to use the tools available
A balance transfer is a tool that can help you get out of debt, but just like any tool, you can do more harm than good if you don’t know how to use it. Be sure to understand everything that goes along with a balance transfer before agreeing to open a new account. When it comes to debt repayment and personal finance, a little knowledge goes a long way.