When it comes to working yourself out of debt, you might be tempted to just transfer balances to other credit cards. ?The following is a Guest Post from Joshua from CNAFinance.
Why Balance Transfer Credit Cards Should Not Be Considered As A Debt Relief Option!
?These days, credit card debt is something that the vast majority of Americans have had to deal with. Throughout the past several years, we have seen a financial recession, changes in laws associated with credit cards and, the ?Card Holder Bill of Rights? put in place to protect consumers from horrible lending practices. Now, it seems like everything is getting back in order! Many consumers have finally started to get new jobs which is helping them to get their finances in order. However, when comparing different debt relief options, many consumers start to think about balance transfer credit cards.
Why Balance Transfer Credit Cards Are Being Mistaken As Debt Relief Options
In most cases, when consumers open a new balance transfer credit card account, they are given incredibly low, often times 0% interest rates. These cards also allow consumers to use them to pay off other, higher interest rate credit card debts. Therefore, it is widely being thought that by transferring all their debts to 0% balance transfer credit cards consumers will be able to accomplish the daunting task of paying their debts back.
There Are A Few Flaws In This Concept
At first glance, it looks great! Low interest rates and the ability to consolidate multiple debts into one account. Seems like a win, win right? Although it is true that consumers can consolidate multiple debts into one and potentially reduce their interest rates, there are a few flaws in the concept of balance transfer credit cards being used as a debt relief option. Here they are:
- You Have To Have A Law Debt To Income Ratio ?? Valance transfer credit cards are designed for a specific group of consumers. One of the characteristics that this group has in common is that they generally have below a 10% revolving debt to income ration. This means that their total credit card and signature loan debts amount to less than 10% of their annual income. If you are looking for a debt relief option, this will most likely not be the case for you.
- You Must Have Good Credit Scores ? When consumers start to experience overwhelming credit card debt and financial hardships, they generally miss a payment or two here and there. This causes a reduction in credit scores. To qualify for balance transfer credit cards, you will need to have good to excellent credit scores.
- Promotional Interest Rates Don?t Last Forever ? When seeking a debt relief option, it is best for consumers to seek out long term options. Even if you were to be approved for a balance transfer credit card, chances are, you will need more assistance. In all reality, promotional interest rates generally expire after only 6 to 18 months. At which point, your interest rates on your outstanding balances would increase leaving you in the same vulnerable position that you are in now! When it comes to long term credit card debt relief options, balance transfer credit cards simply don?t make sense.
Other Credit Card Debt Relief Options Worth Considering
Although balance transfer credit cards aren?t great debt relief options, that doesn?t mean that there are no good options out there. There are actually several! Here are 2 of my favorites:
- Aggressive Payment Plans ? If you are not overwhelmed but, you do want to get rid of your debts fast, this could be an option for you. There are several different types of aggressive payment plans out there however, my favorite is the debt stacking and constant payment plan. In this plan, you attack the highest interest rate by paying only minimum payments to all accounts but the highest rate. All extra funds that you can afford to pay would be sent to the highest interest rate. Also, you choose a constant payment based on your current minimum payments and how much extra you can comfortably send. Once you come up with your constant payment, you make sure that you never send less until your debts are completely paid off. As you pay your debts down, your minimum payments reduce allowing more funds to be allocated to the principle balance.
- Credit Card Hardship Programs ? Although, we may think of credit card companies as big corporations that don?t care if we are having a hard time, this isn?t the case. As a matter of fact, many lenders have created financial hardship departments to help consumers who have been put in positions of financial hardship! In these programs, lenders will reduce interest rates and create a more aggressive yet manageable payment plan. All it takes to get set up is a simple call to your lender!
?Let?s Put This All Together
When it comes to credit card debt options, balance transfer credit cards should not be considered as one. Although, they may be great financial tools for some consumers, they just don?t work as long term debt solutions. When in a position of credit card debt, I would strongly recommend seeking other options like aggressive payment plans, credit card hardship programs and talking to a representative at your local bank about others.
About The Author ? Joshua Rodriguez
This article was written by Joshua Rodriguez, proud owner and founder of CNA Finance. This article was inspired by his most recent project titled ?Balance Transfer Credit Cards ? A 7 Step Guide To Understanding This Lending Option?. Join the discussion about this article and the Joshua?s series on Google+!
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