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Zero-balance transfers: top tip or terrible trap?

If you've found yourself in credit card debt -- for whatever reason -- and are having trouble getting ahead of the game because of high interest rates, some people recommend using a zero-balance transfer to tip the scales in your favor. While such strategies do have benefits for those dealing with debt, they can also create a debt trap that is even harder to get out of.

The concept works like this: You have one credit card balance at a high interest rate, and another card company is offering you an account. To entice you to use its service, the new credit card company says you can transfer an existing balance to the new account and pay no interest on that balance for a period of time -- usually six months to a year.

The advantage of this strategy is that, with no interest accruing, you can pay down the debt much faster and at less cost. The disadvantage is that many people don't actually do that.

Often, individuals make the balance transfer to the new account. That leaves their old account with extra credit and they might have additional credit on the new account. The temptation exists to run up both balances, leaving the person with even more credit card debt than they started with.

Using credit cards can be very tempting, even if you're good with money and understand the consequences. If you are in a situation of financial distress, the credit card might seem like the only way to buy certain necessities, and the impact of the additional credit can snowball into a bigger crisis before you realize it.

Transferring your account to a card with a better interest rate or perks is not always a bad idea, but it isn't usually a great option for someone struggling with debt. Working to seek true debt relief through legal means such as renegotiation or bankruptcy might be options for someone with serious debt concerns.

Source: Forbes, "The Risks And Opportunities Of Using A Balance Transfer To Eliminate Credit Card Debt," Nick Clements, accessed Dec. 04, 2015

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