One of the first things that many people do when they’re trying to straighten out their finances is to transfer the balance from one credit card to another; lured in by lower introductory interest rates or a larger line of credit.
But doing a balance transfer is a juggling act that can easily lead to a greater financial burden. First, by doing a balance transfer from an existing account to a new one, you’re not eliminating debt, but instead, you’re taking out new debt. At Fast Track Debt Relief, our goal is to help our clients settle their debt.
Another problem with a balance transfer is that the lower introductory interest rates will end without notice, and you’re suddenly stuck with a whopping interest rate on your new debt. The same thing goes for consolidation loans. On the face of them, it might look like an easy way to control your debt by creating one large monthly payment. But again, this is creating new debt and, in the end, it will take you much longer to pay if off than if you settled your debts through a debt settlement program.
You have to be very careful with balance transfers. Those teaser rates can increase to a higher rate in three or six months or even a year down the road. Surfing credit card rates can easily lead to one slip and a complete wipeout. That low initial interest rate can jump 20% or higher in a matter of months and you’re stuck with the new higher interest rate on your new debt.
Surfing credit card rates to do balance transfers is risky because if you make one late payment, whether it’s lost in the mail and no fault of your own, or otherwise, the introductory period will expire and the credit card company will raise the interest rate to more than 20% on average. The same thing happens if you accidentally exceed the credit limit on the card. Instant higher rates will result.
If you're thinking about doing a balance transfer with credit cards, it’s important to read the fine print. Creditors will use nearly any excuse to hike up the rate and charge penalty fees because you broke the rules of that fine-print credit card agreement that no one bothers to read.
There are many sneaky moves being made by credit-card companies these days. Some credit card companies place due dates on weekends, but their mail won't be processed until Monday. This increases the chance that your payment will be late and, therefore, breaking the agreement and hiking up your rate. Others require payment by a certain time on the due date. If your deadline is noon and their mail doesn't come until 2 p.m. with your payment, you're late and, again, your rate is jacked up.
Some credit card issuers provide distant addresses, which lengthens mail delivery time and increases the chance of a late payment.
Another problem with a balance transfer is that they assess a higher rate for new charges, but your payments are applied to the lower-rate debt first, such as for your balance transfer, and that makes it hard to make headway on the new debt on which you are paying the high interest rate.
Even sneakier – your new credit card company can raise your interest rate on your balance transfer loan just because you’re late on a payment to a different creditor. This is called a universal default clause and it’s in the fine print of your credit card agreement.
Creating new debt with a balance transfer isn’t the best route for many people. Consider all of your options, including debt settlement. Fast Track’s debt settlement program is designed to help you become debt free in 12 to 36 months. Our experienced debt specialists are here to help you.
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