Credit card debt is a financial issue for many households. People use credit cards for unexpected expenses and may spend months paying off a large balance. Other credit card users leave a small balance each month that slowly accrues to a massive amount of personal debt.
Eventually, people may find that they no longer have much credit available on their credit cards and may worry about their finances. Bankruptcy is a powerful solution for those struggling with high levels of debt, but many people would rather try anything else rather than filing for personal bankruptcy.
Credit card companies take advantage of people’s good nature by offering them products that seem like debt solutions. Yet, one common credit card offering can leave people in even worse financial circumstances.
Balance transfers often worsen people’s debt
New credit card offers and letters about the increase of a credit line often come with a special offer to transfer the balances accrued on existing credit cards. Not only does someone have a new line of credit available, but they can move what they owe elsewhere to the new card. They may benefit from a low introductory interest rate. That rate could be as low as 0% in some cases.
The problem arises from fees and interest. The fine print for balance transfer offers often includes a fee that is a set percentage of the balance transferred from one account to another. There is often also a deadline for that low introductory interest rate. If people don’t pay the balance in full by a certain time, then a large amount of interest may become due and payable all at once.
The interest typically goes back to the initial date of the transfer if people don’t adhere to the terms of the offer by paying the balance in full by a specific date. The interest that they owe could significantly increase the balance they already owe.
Bankruptcy is a more effective solution
Despite people’s aversion to bankruptcy proceedings, it can be a very effective choice for those with substantial credit card debt. Instead of moving the balance load from one account to the next and incurring interest and fees, people can discharge what they owe. They can eliminate eligible unsecured debts and free up their financial resources for other necessary expenses, such as rent or mortgage payments.
Learning more about different debt solutions, and why they may not be as effective as bankruptcy, can benefit those struggling with high levels of personal debt. Personal bankruptcy can offer true relief from overwhelming debt when people cannot fulfill all of their financial obligations.