Balancing Act: Why credit card balances sometimes make sense

Nothing is quite as deterring and crushing as credit card debt, more specifically trying to balance between having multiple cards and lines of credit and figuring out exactly how to get out from underneath all of it.

Financial experts argue back and forth for varying opinions on all of it. Some say you should take whatever savings you have and pay off all your debt or as much as possible, which leaves you without your emergency fund. Others suggest that you should use an inverted paying scale, so that you focus on the small debts first and then work your way up to the heavier hitters on your list.

That point is valid, but also you have to consider interest rates at some point, too.

The balance transfer is no different in that it has its good points and other times when doing it just make very little sense at all, if any.

For starters, the balance transfer only works primarily if you plan is to take that zero interest rate or low introductory rate and pay the entire balance off in the time suggested by the promotion. If your interest rate is 0, and you transfer $5,000 and that rate is good for 24 months, you should budget out payments that equate to a two year plan includes payment that allow you to pay off the entire amount. Anything short of that is going to leave you in a similar spot you were when you took the card out and transferred the balance: you’ll have money left to pay and the lower rate goes away and is replaced by the same larger interest rate you’ve just tried to get rid of previously.

You also, as part of your balance transfer, need to take into account that you’re not going to add more debt as well. Having a balance transfer from one card to the next doesn’t give you free reign to start charging again or racking up another balance on that now free and clear card. That free and clear card is a very good thing in that it actually helps your credit score, with the worst next step actually being closing the account altogether.

Closing a line of credit does count against your credit score, and your debt ceiling could be affected in a positive way seeing as how you have a card that has nothing on it in the way of owed money.

Balance transfers aren’t a fail safe in that you can identify it as an easy way to eliminate debt. It simply takes debt and makes it more manageable, as it is still up to you to see the entire process and payoff all the way through.

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