Rising high-interest credit card debt has people looking for ways to get financial relief. The average household carries approximately $9,000 in credit card debt, up a reported $400 per person from 2022. Many struggle to pay down balances because high interest rates make the process feel like shoveling sand against the tide. And while making a credit card balance transfer is a great solution for many, this approach can bring unforeseen consequences if the circumstances aren’t right.
What is a Credit Card Balance Transfer?
A credit card balance transfer involves taking the debt from one account and paying it off with another that has a lower interest rate and/or good introductory offer to provide some financial relief. The result is that the initial balance simply appears on a different credit card account, but there should be some savings with the reduced interest portion of the payments. A well-thought-out transfer can help people reduce monthly interest costs and get out of debt sooner. But common missteps often create obstacles that could leave hard-working individuals worse off.
Here’s When You Shouldn’t Complete a Credit Card Balance Transfer
If you have substantial debt on a high-interest account, it may be worth considering a credit card balance transfer to one with a lower rate. But when stress and anxiety get the better of us, even financially knowledgeable people can make an error. These are times when it would be wise to refrain from making a credit card balance transfer.
1: Don’t Complete a Credit Card Balance Transfer If You Can’t Pay On Time
The basic concept of reducing costs by moving debt to a lower interest rate credit card only makes sense if you have the ability to pay on time. If you aren’t keeping up with the current credit card monthly minimums, a transfer is not necessarily going to resolve that problem.
It’s more likely that you'll end up with two credit cards that show late payments. Along with incurring penalties for not meeting monthly minimums, your credit score will take hits from two accounts. If you're struggling to make credit card payments, consider trimming monthly expenses and diverting more cash to pay down the account. Wait until you have your expenses under control before completing a credit card balance transfer.
2: Credit Card Balance Transfers Aren’t Helpful If The Debt Can Be Paid Off in 3 Months
If after using a credit card payoff calculator you find your credit card balance could be paid off in three months or less, it may be best not to move forward with a credit card balance transfer. Making a credit card balance transfer could result in having to pay fees. Many lenders charge between 3 and 5 percent to move debt. Adding to the total amount by 3-5 percent could effectively offset any financial gains you might see from a lower interest rate. In some cases, consumers end up losing money. Also, if you're able to pay off the debt in three months, it may not be worth the potential dip your credit score may see by opening a new line of credit.
3: Don’t Complete a Credit Card Balance Transfer If You're Tempted to Run Up Another Balance
Thinking about proactive solutions such as a credit card balance transfer demonstrates a desire to improve your financial health and money management. But unchecked spending habits are a primary reason for high balances. It’s important to be honest with yourself about the next steps. Are you ready and willing to rein in spending and stick to a budget?
It may be best to create a monthly budget that covers necessities and leaves enough money left over for reasonable leisure spending. Test that budget out and see if you're able to stick to it. If you exceed your own spending guidelines, a credit card balance transfer may not be the right solution. Opening another account could drive you deeper into debt.
4: A Credit Card Balance Transfer Can’t Fix Your Overwhelming Debt
Overwhelming debt can make you feel like you’re swimming in quicksand. People drowning in debt often discover that transfers aren’t a viable solution. What tends to happen is that only a percentage of the high-interest debt can be transferred. That leaves people with an additional monthly payment, and more money going out the door each month.
Rather than try to put a Band-Aid on an open wound, consider reaching out for debt management help. Peach State offers free debt and budget coaching for our members through BALANCE Financial Fitness to help you get back on track.
We Can Help You Decide If a Credit Card Balance Transfer is a Good Idea
If you're struggling with high-interest credit card debt, contact Peach State today so we can help you decide if a credit card balance transfer is the best solution for your unique situation.
If you're ready to move ahead with a credit card balance transfer, our low-interest credit card, rewards credit cards, and student credit card, feature no penalty APR, no annual fee, free balance transfers, and more. Apply online for your Peach State Visa Credit Card today!