Posted by Mike Smith :: November 20, 2007 @ 6:21 am

You know the costs of carrying a credit card balance can be overwhelming. You also know that consolidating debt through a P2P loan from Lending Club may be an affordable way to avoid carrying a balance month after month. Some consumers think that they’ve found an easier solution to the problem: they play the balance transfer game.

The balance transfer game is the practice of transferring your credit card balances to new cards with low teaser rates in the hope of saving on interest charges. I call this a game because it is a cost-saving activity that is occasionally won and often lost.

Here are the main problems with balance transfers:

• Interest rates on balance transfers are often temporary
• Payments are typically applied to the lowest interest rate first
• A late payment (or universal default) could instantly raise your interest rate
• Repeatedly opening new credit lines could adversely impact your credit score

With all of these caveats it’s easy to see why the balance transfer game is often a losing proposition. In order for it to be beneficial, you would have to very rarely play the game, not use the new card for other purchases, pay the bill on time, pay all of your other bills on time, and pay off the balance before the low rate expired.

Trying to save on interest, in an effort to reduce your debt, is a noble aspiration. Thinking that you can short-cut the process by playing a risky game like repeatedly using balance transfers is not the way to go. If you are truly looking to get out of debt and establish better credit, get off to a good start by consolidating in a responsible manner.