Vanishing Balance Transfers Force Americans to Find Alternative Credit Card Consolidation Loans

[Apr 10, 2009.]

 

Credit card account holders across the United States may have noticed a few less envelopes in their mailboxes this month. According to industry statistics, many credit card issuers have reduced the number of convenience checks and balance transfer offers sent to their customers this quarter. This popular form of low-cost credit card consolidation made it easy for Americans to bounce account balances from card to card. However, in an environment where credit card issuers want to reduce their risk, balance transfers come with a new set of rules.

Although federal agencies don’t keep records on the percentage of Americans using balance transfers to keep their budgets afloat, some financial planners are already bracing for the effects of a slowdown in credit card consolidation loans. Issuers that once used fee-free credit card consolidation offers to poach new customers now require upfront transfer fees. In addition, many balance transfers carry different terms and interest rates than the rest of a cardholder’s balance. For example, an account with a 7.9% interest rate on purchases might carry a 19.9% interest rate on balance transfers or convenience checks.

Closing off this form of free debt consolidation can put pressure on families attempting to recover from layoffs or illness. With nowhere left to transfer long-term debt, these cardholders must start coming up with higher minimum monthly payments, even though little of their monthly income goes toward paying back capital.

Credit Card Consolidation Alternatives

Resourceful Americans have found some ways to break the cycle of balance transfer dependence, such as:

• Personal loans from banks or credit unions. Cardholders with reasonably good credit can still obtain personal loans, especially from community banks and credit unions. In most cases, these credit card consolidation loans require borrowers to cut up their cards, often in the presence of loan officers. Other lenders make account closure requests on behalf of borrowers, to ensure that cardholders don’t repeat a cycle of debt.


• “Peer-to-peer” loans facilitated by online services. For Americans with rougher credit histories, online community lending services have emerged as an alternative to traditional banks. Although Prosper and Lending Club still make use of credit scores to determine risk and interest rate levels, citizen lenders can read profiles and blogs written by prospective borrowers. Proponents of the services liken peer-to-peer lending as closer to the traditional methods of seeking credit before the days of automated decision making.


• Free debt consolidation counseling. In the worst case scenarios, consumers can seek free credit counseling from accredited not-for-profit agencies. Although few agencies offer credit card consolidation loans, legitimate counselors can help arrange emergency interest and fee waivers while helping to manage monthly debt payments.

Balance transfers and fee-free debt consolidation loans may be going away for a while, but Americans committed to reducing debt can still find strategies that can save money in the long run.

 

About Author:

Joe Taylor Jr. is an internal business consultant for a Fortune 500 company, who writes about finance, culture, and design. He holds a Bachelor of Science in Communications from Ithaca College.