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Do credit card balance transfers just extend the cycle of debt?

There is a lot of talk right now about wage stagnation. Consumers are finding it harder to make ends meet, even if they have good jobs, because their wages have not increased at the same pace that prices have increased. A friend of ours, for example, is making just 3 percent more than she did eight years ago. According to the Bureau of Labor Statistics, the consumer price index has increased more than 10 percent during that same period.

The economic recovery depends on consumers buying more stuff, though. With wages stagnant, that can easily translate into more unsecured debt. reported at the end of December 2014 that the total credit card debt for all American consumers was $11.74 trillion -- a 3.3 percent increase from the year before. The average household is carrying almost $16,000 in credit card debt, about $155,000 in mortgage debt and more than $32,000 in student loan debt. It is easy to feel overwhelmed (please note: statistics for consumers in Illinois were not available).

There are a variety of ways to lower mortgage and student loan payments. A homeowner can restructure his mortgage loan; a graduate can take advantage of income-based repayment programs to get through that student loan debt a little faster. What about credit cards, though? It may be possible to work with the card company to reduce the interest rate, but the interest charges will continue to pile up.

An old friend has reappeared to help out: the balance transfer. Credit card companies are once again offering fairly attractive options for balance transfers -- open an account with a new company, transfer your balance and reduce your monthly payments thanks to the lower interest rate offered by the new card company. It looks good, but consumers may be a little wary of deals that look good. Older consumers will remember the mess that transferring balances got them into the last time.

To determine if balance transfers could really save the cardholder money, the credit card comparison site CardHub analyzed offers from more than a dozen card companies. The results were interesting, and a little unexpected.

We'll explain more in our next post.

Source: The New York Times, "Credit Card Balance Transfer Can Reap Savings if Done Cautiously," Ann Carrns, Feb. 20, 2015

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