In April and May, credit card lenders drastically reduced the number of balance transfer offers they sent out, down by about 77% compared to the same time last year, according to a report by Mintel Comperemedia.
Due to loss of income from the coronavirus financial crisis, consumers may be relying more on credit cards. But now, lenders appear increasingly concerned about extending credit to people they believe may not be able to pay what they owe. For consumers, this means it could be harder to get a balance transfer card now than it was just a few months ago.
If you’ve been considering using a balance transfer to help you manage your debt, here’s what you need to know.
How does a balance transfer card work?
In general, balance transfer credit cards can be a useful tool to help manage debt. The cards offer a low or 0% interest rate for a limited amount of time (called a promotional period), which can help save on interest charges if you pay down the balance you transfer over during the promotional period. There’s typically a balance transfer fee of around 3%-5% of the amount you transfer.
Can I qualify for a balance transfer card even during the recession?
While the usual balance transfer terms are still available from most credit card companies, lenders are being more selective about who they give offers to. Normally, you’d need a good credit score (around 700+) and sufficient income relative to the amount of debt to qualify. However, every lender sets their own qualification criteria, and it can change as credit card companies re-evaluate the risk of these types of loans.
The important questions to ask yourself are:
- Is a balance transfer the best strategy for managing my debt?
- What other alternatives are there, and how do they compare?
If you’re going through a short-term hardship due to COVID-19, but are confident you can get back on track paying down debt once your income situation stabilizes, one alternative to a balance transfer would be to ask your lenders for forbearance.
If you were already struggling with heavy debt before the current recession, then a balance transfer may or may not help you. In fact, it could even make your debt situation worse.
Balance transfers make the most sense if you can pay all or most of the debt before the promotional period ends and if you’re transferring a relatively small amount of debt. It’s also important to calculate how much you’d save in interest charges compared to your current card and make sure it’s more than what the balance transfer fee on the new card would be.
Alternatives for managing personal debt
If a balance transfer doesn’t make sense in your situation, or you’re not able to qualify for one in the current environment, the good news is that you have other options, including:
Asking your credit card company for a forbearance could be the easiest way to get immediate relief from payments and collection calls, but it could also prolong your debt if interest continues to build up while you’re not making payments. A consolidation loan, credit counseling, and debt settlement all require that you have income so you can pay down your debt.
If you don’t have a job at the moment, ask your lenders for a forbearance. Once you’re employed again, consider the other options on the list. If your debt is so overwhelming that you can’t manage the payments even with an income, then bankruptcy may be your best option.
Wondering how to best manage your debt right now?
The good news is, there are several options available to help you manage your personal debt. To figure out what makes the most sense in your particular situation, it can help to talk to a Certified Debt Consultant who is trained and certified by the IAPDA to help consumers understand their debt resolution options. To get a free consultation with one of our Certified Debt Consultants, get started here.
- Unemployed? Here’s How to Keep Managing Your Credit Card Debt (Freedom Debt Relief)
- Credit-Card Balance Transfers Are Harder to Come By (Wall Street Journal – behind paywall)
- Will We Get Another Stimulus Check? (Freedom Debt Relief)
- Will Your Credit Limit Be Cut? (Freedom Debt Relief)