Having several credit cards can help you balance your budget. Different due dates and reward bonuses allow you to use targeted financing solutions for purchases.
Unfortunately, if the balance on one of your accounts gets too close to the limit, you may not be able to use that card for purchases anymore. In fact, you may be at risk of over-limit fees and other charges that will increase what you have to pay to use your card every month.
When you open a new credit card or when an existing card starts a promotion, you may have an offer for a low-interest or no-interest balance transfer. A balance transfer allows you to move the money you owe from one high-interest card to another. Although people often treat balance transfers like a debt solution, realistically, they are often a trap.
Balance transfers just move what you owe
When you transfer your $5,000 credit card balance to a different card, you will still need to pay all that money back. You could owe more after transferring the balance even before interest starts to accrue with the new credit card company. It is common for companies to require either a flat fee or a percentage of the balance as a charge for making a transfer.
The promotional interest rate that they offer can also lead to issues. If you don’t pay off the entire balance transfer before the end of the promotional period, which might be a few months or maybe a year, you will have to pay the card’s standard interest rate on the balance. In fact, that interest rate will likely apply retroactively to the date when you first made the transfer, resulting in a huge interest charge what’s the promotional period ends.
How can you handle credit cards at their limit?
If you owe much more on a credit card than you expect to pay off in the foreseeable future, a balance transfer won’t fix that situation. It will just slightly delay intense collection activity.
Personal bankruptcy is a better option for people with overwhelming credit card debt because it leads to a discharge of the remaining balance on your accounts. Of course, the credit cards also close as part of the bankruptcy process, but that may be a reasonable price to pay for the reduction of your unsecured debt.
Learning about how credit cards trap you in a cycle of debt could help you appreciate the benefits of filing for personal bankruptcy.