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Attractive balance transfer deals not always good debt relief bet

How often in the midst of the most recent recession have consumers received pitches from credit card companies inviting them to take out a new account? Such offers were common around Plano and other Texas towns and seemed to be indiscriminate in terms of who they were sent to. Someone facing financial hardship was as likely to get the call as someone in the financial pink.

Now that the recession is supposedly over, the pitches have only increased. And along the baselines of the game are such companies as CardHub.com, an online source for applying for unsecured credit cards.

In one recent review by that company, the firm hailed the fact that a number of major card issuers allow you to transfer balances of car loans onto their cards. In some instances, those cards offer zero percent interest for up to 18 months.

The effect, the review says, is that secured debt becomes unsecured debt and the conclusion served up is that strategic use of such offers could save consumers a lot of money in interest. As appealing as it might sound, some credit experts urge caution. Here's why.

First, the presumption is that a consumer could pay off the car loan within the window of zero percent interest opportunity. That may not be possible. If it isn't, double-digit interest will kick in and likely eat up any savings that might have been.

Second, credit industry observers note, taking out such a card can negatively affect your credit score. That's the nature of unsecured debt as compared to secured debt. It begs the question as to whether shifting the balance to a revolving charge account from an installment plan is worth it.

The bottom line is that debt relief, while often sought and available in a lot of different forms, needs to be examined carefully before decisions are made. It may be that a balance transfer might help. In other circumstances, the right choice might be some form of consumer bankruptcy. An attorney can help sort out the best options.

Source: The New York Times, "The Risks of Transferring a Car Loan to a Credit Card," Ann Carrns, March 18, 2013.

  • The subject of this post deals with matters handled by our firm. To learn more, please visit our Dallas credit card debt page.

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