It only takes an increase in personal spending or a sudden drop in income for someone’s credit card debt to become problematic. When you can no longer pay off your full balance every month, you will pay quite a bit in interest. You are also at risk of expensive fees, like monthly over-limit fees.
Many credit card companies now offer attractive-sounding balance transfers to those with a high credit card balance. Unlike bankruptcy, a balance transfer is just another debt trap.
How balance transfers can cause more trouble
On the surface, it may seem like moving debt from one account to another one with a lower interest rate is a good move. It will free up available credit and reduce how much you pay in fees.
Still, there is always a catch when a credit card company offers you financing. When someone initiates a balance transfer, the credit card company will likely charge a flat fee or a specific percentage of the amount transferred as a fee. The interest rate at first is very low or even 0%, but you will have to pay the balance off in a certain amount of time or risk big interest charges.
The credit card company will typically go back to the date that you transferred the balance and impose the interest rate starting then. If you go past the promotional period and still owe a balance, you may get hit with hundreds of dollars of interest all at once.
Bankruptcy is a better solution for those with more credit card debt than they can pay. It offers a discharge, which means they will no longer need to repay the amount owed. Learning more about personal bankruptcy can help you regain control over your finances and overwhelming credit card debt.