Every credit card has its own unique terms. The lender imposes a specific interest rate and may collect an annual fee, especially if it is a rewards card. The business may assess penalties if you fall behind on payments or go over the limit for the account balance.
When you have very little available credit left on your account, you may pay the minimum amount due on your bill every month while still struggling to reduce the total amount that you owe. If another credit card company offers you the option of transferring your balance, it may seem like a way to make the best of a difficult situation.
However, balance transfers don’t actually resolve the debt issue you have.
Most balance transfers come with conditions
If you read the fine print on the balance transfer offer, you will likely discover that the credit card letting you transfer what you currently owe wants to charge you a fee for doing so. It could easily be a percentage of the total balance rather than a flat fee.
Although balance transfer offers often have tempting interest rates, those are introductory or promotional interest rates. They will expire at a certain point if you have not paid the balance in full. You will then owe the higher, non-promotional interest rate for the entire balance since you first made the transfer. Essentially, hundreds of dollars in interest could hit the account all at once if you don’t manage to pay off what you owe before the promotional rate expires.
Although balance transfers allow you to keep your credit cards in good standing and may temporarily reduce your monthly bills, they usually charge you extra money to move your balance and then interest on that balance afterward.
Bankruptcy is an actual debt solution
Instead of just moving the debt you owe from one company to the other and increasing the total amount you have to repay while you do so, it may be a better option to simply eliminate your unsecured debt. A successful personal bankruptcy filing will end in the discharge of your unsecured balances.
While you will have to close your credit cards as part of the bankruptcy process, you will also free yourself of the obligation to pay off the full balance that you owe. Recognizing the limitations of different debt solutions can help you evaluate whether bankruptcy is actually the better choice when you can no longer balance your budget.