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Balance Transfers Are A Targeted Solution

Balance transfer credit cards are gaining popularity as a temporary solution to ever-increasing debt problems. However, what many users don't know is that recent legislation makes it much easier for credit card companies to collect on existing debts, thanks to an increased difficulty in declaring bankruptcy. Since this means that a large consolidated debt represents a much bigger target for potential profit by credit card companies or collection agencies, it's advisable to make sure that users have a sound plan to get out of debt before consolidating debt balances.

Balance transfer credit cards are getting a reputation as a catch-all solution to existing problems with credit card debt. It does have to be noted that as a debt consolidation strategy, balance transfer credit cards can be extremely effective, allowing users to sharply reduce or even eliminate growing debt in the short term by performing a balance transfer on existing debt to a new balance transfer credit card with generally a 0% introductory APR. Since this seems to be an ideal solution to the growing societal problem of massive credit card debt, balance transfer credit cards have become very popular, a popularity reflected in the marketplace by the vast number of balance transfer offers now being offered by major credit card companies.

But common sense dictates that anything that seems too good to be true probably is, and any fool-proof solution to financial problems should be carefully investigated before any consumer takes the bait. Although balance transfers certainly don't seem too good to be true--credit card companies openly admit, in the fine print of their terms and conditions, that introductory rates aren't permanent and that interest--meaning further debt--will begin to accumulate on a balance transfer credit card after the close of the introductory period, usually six to twelve months. The ultimate interest rate isn't particularly high for balance transfers; something like 14% is the normal regular interest rate on the most popular cards. But that higher interest rate is there, and anyone thinking of a balance transfer as a permanent solution to existing debt would be advised to think again: balance transfer credit cards offer only a temporary reprieve from accumulating additional finance charges, nothing more.

This becomes especially critical due to the current environment in which the credit card companies operate. Recent legislation makes it much more difficult than in the past to declare bankruptcy due to credit card debt, a favorite last-resort remedy for the multi-thousand dollar debts that can accumulate. This new legislation gives the credit card companies and collection agencies unprecedented power in collecting debts from users, and thus much more potential profit.

Because of the way markets work, more potential profit means many more card offers in the marketplace, including a large number of balance transfer credit cards. Since balance transfers are intended for people with existing debt, these cards--if improperly used as cures for debt rather than temporary treatments--represent a high potential profit margin for the credit card companies. If all of your debt is consolidated, through a balance transfer, on that company's card, that company stands to make much more money in the event that you can't find a permanent solution to your financial problems, and that your debt becomes ripe for collection. And due to new legislation, there's every chance that the credit card company will be able to collect.

This isn't to say that balance transfer credit cards aren't a viable treatment for debt problems. They do have some very positive effects: timely use of a balance transfer can buy a user an additional six to twelve months of interest-free time in which to resolve financial issues. But users should be warned to use that time wisely: a consolidated debt more than ever now represents a large potential profit for the providers of the balance transfer credit card that contains the debt. If users don't show a good measure of financial prudence, using balance transfers to consolidate debt can minimize the number of collection agencies coming after them for money, yes. But a large consolidated debt represents a much bigger profit for a single collection agency than any comparatively small unconsolidated debt, which means that rather than users flying beneath the debt radar, the unwise use of balance transfer credit cards could send users flying right into bankruptcy's face.

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