Shifting debt among credit cards is often riskier than it seems
In this tough economy, a lot of Georgia residents are looking for ways to stretch their paycheck and manage their debt. One of the ways that people often do this is through consolidating debt or shift debt from one loan to another. Doing this can simplify payments and sometimes reduce interest rates, or at the very least could help delay being late on a payment. One trend that credit experts have picked up on recently is the transferring of debt from a car loan to a credit card with a temporarily lower interest rate.
However, borrowers should be wary of shifting or transferring debt and will want to consider some important factors before taking advantage of low or no interest rates they see advertised on TV.
Credit card companies work hard to make these types of deals attractive, offering low introductory rates for new cards and allowing consumers to transfer their other balances or loans to the new rate.
The key difference between a car loan and credit card debt (aside from the radically different interest rates) is that a car loan is secured debt, which means that the lender can take back the vehicle if the borrower does not continue to make regular payments. Credit card debt, on the other hand, is unsecured, which means that there is no specific piece of collateral that the lender can look to if the borrower does not make their payments.
From this perspective, it might seem like a good idea to transfer the balance of a car loan to a credit card, since a default would not result in loss of the vehicle. However, the much higher interest rate will wind up costing quite a bit if the loan still has a high balance, and that might make keeping the car a poor financial decision anyways, particularly for someone struggle to pay off their debt.
Source: New York Times, “The Risks of Transferring a Car Loan to a Credit Card,” Ann Carrins, March 18, 2013.
Information about other ways to stop repossession of a car can be found on our Georgia bankruptcy site.
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