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Balance transfer to a new card: Good alternative to bankruptcy?

It is a rare person who gets enthusiastic from the beginning about filing for bankruptcy. Rather, people who struggle with debt tend to try other solutions first. For example, they may cut back on spending, take in a roommate to help pay rent or transfer their credit card balances to a new card that has a 0 percent introductory interest rate.

Sometimes, these approaches work. Unfortunately, many times, they delay what would have happened anyway and consumers are even further into debt. For instance, cutting back on spending may work if you do not have a surprise emergency such as a large car repair bill, and getting a roommate does not always mean that person pays on time and treats your property well. As for credit card balance transfers, approach them with caution.

When balance transfers could work

There are a few cases in which balance transfers could succeed in getting rid of debt. Say that you are expecting a large financial change within a few months. Perhaps you are just waiting for a significant pay raise to come through or for a will to go through probate so you can receive an inheritance. In these situations, you go into the balance transfer with the knowledge that you will have enough money before the 0 percent introductory offer ends to pay off your balance.

Why they frequently do not work

Balance transfers come with costs. For one thing, you will likely have to pay a fee, perhaps as much as 5 percent of what you are transferring. Say that you want to transfer $5,000, and the fee is 5 percent. Now you owe an additional $250. For another, if you are transferring your balance without a plan to have it paid off before the introductory rate expires, you could be in for higher interest rates than you were paying with your old card. Keep in mind that emergencies such as car repairs, doctor bills and broken pipes tend to add to debt at the worst possible times. So, when the introductory rate runs out, you might end up struggling much more than you did before getting that new card.

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