How often have you walked into your bank and been ‘invited’ to open a new credit card, or better yet ‘refinance’ your debt? The opportunity to ‘participate’ or receive a ‘special offer’ happens every day not only at banks, but at other places such as department stores. We have become accustomed to accepting offers of debt, and seldom realize that places that should help us eliminate debt are actually working against us.
Banks own credit card companies, and have a stake in the debt game is very profitable for them. Statistics show Americans are taking on more debt in order to make ends meet due to a variance between wages and the cost of living. With increasing costs for food, medical, and housing, banks have adjusted qualification standards in order to offer debt solutions to more people. What is surprising is how easy it is to refinance debt with debt!
Prior to considering a credit card ‘refinance’ by opening another account and transferring debt to it, evaluate if this makes sense for your personal situation. If you anticipate carrying debt for 1-2 years, it probably makes more sense to stop spending and start a plan to pay off your debt.
If you’re considering selling your house in the next 2-3 years, refinancing in order to access equity to pay off debt doesn’t make sense. Tying up your equity eliminates the chance to use it to purchase another property, and also increases the likelihood of limited negotiating power when you’re stuck at a ‘reserve’ price in order to cover your debt when you sell.
When you’re offered the opportunity to refinance your debt at your local financial institution, ask the solicitor to ‘work the numbers’ for you to evaluate if this makes sense for you. If they can’t explain features, benefits, and conflicts to you regarding the transaction, you probably should not consider it. For an interesting article and statistics on credit card and other types of debt Americans carry, visit Nerd Wallet’s 2016 survey.