4 reasons a credit card balance shift is a bad idea
Some credit card users suffer from what I call “serial getout-of-debt disorder.” This means you if you follow this pattern: You have the ability to aggressively cut expenses and/or are in a position to earn more to get out of debt. You pay it off, but credit cards with no balance somehow become an irresistible invitation to spend. The purchases start off slowly. You got this. You can pay off the balance by the due date. Then the debt starts to increase. Before long, it spirals up and you can’t pay it off every month.
The promise you made to yourself that it wouldn’t happen again is broken.
Credit card balances spiked by $61 billion, to $986 billion, in the final quarter of 2022, according to data on household debt from the Federal Reserve Bank of New York. That surpassed the prepandemic high of $927 billion.
To deal with their disorder, serial debtors often turn to a common cure — a credit card balance transfer.
To lure customers away from other companies, lenders entice with 0% balance-transfer promotions. Many offers right now range from 15 to 21 months.
If everything goes as planned, a 0% promotion can help you dig out of debt. But this strategy isn’t good for everyone. Here are four reasons a credit-card balance transfer is a bad idea.
You’re addicted to debt
You know who you are. You are good at erasing your credit card debt. But the euphoria you experience from getting out of debt doesn’t last long.
Without a balance on your credit cards, you begin spending again. …
You aren’t disciplined
Someone gets a 0% balance offer and transfers debt from an old card. They figure out how much they have to pay every month to pay it off before the offer expires. Things go well, at least for a few months.
Then life gets in the way. There’s a car repair (or a trip).
The 18-month, 0% offer seemed like it was enough time. Except time ran out. The rollover debt is now on a new card with a higher interest rate. …
If you’re trying to get out of debt, you have to stop spending. Yes, charges for new stuff are at 0%, but that adds to the money you owe.
You need a loan
If you’re in the market for a mortgage or car loan, you need to be careful about applying for a credit card.
Let’s say a lender uses the FICO scoring model, in which credit scores range from a low of 300 to a high of 850. You have a credit score of 700, but, when you apply for a balance transfer card, your score drops by 10 points. If a lender offers its best rates to consumers with a score of 700 or more, that decrease could land you in a lower pricing tier, ultimately resulting in a higher interest rate for a mortgage or car loan. …
Instead of using more debt to pay off debt … try the National Foundation for Credit Counseling (nfcc.org) or call 800-388-2227.
You spend recklessly
Balance transfers often don’t work if you’re still spending recklessly. …
You can play the balancetransfer shuffle game, but if you haven’t addressed the reasons behind your overspending, you’ll find only temporary relief from debt overload.