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Transferring debt to credit cards can be risky

On Behalf of | Mar 19, 2013 | Credit Card Debt, Firm News

Florida borrowers who have encountered financial difficulties know that it can often be tempting to shift growing debt among different lenders. People shift debt from one credit card to the other, or from one bank to another, for many reasons, often with the intention of postponing delinquency and getting a little more time to save the necessary funds to make full payments.

Credit card companies facilitate this, offering low or no interest periods for new cardholders and allowing customers to pay off other debt using the new credit card. A recent survey of this part of the credit industry revealed that in addition to transferring credit card debt, many credit card companies also allow the transfer of other types of debt, including debt like car loans.

This is where it gets tricky, because a car loan is what is called secured debt, which means that it is a loan that is backed by collateral, which lenders can take or sell in lieu of full payment. Credit card debt, on the other hand, is unsecured, which means that creditors have only the borrower to look to for satisfaction of the debt, rather than a specific item that could compensate them. This is one of the major reasons why the interest rates are much higher on unsecured debt. Transferring the balance of a car loan to a credit card means that the borrower is no longer at risk of having the car repossessed, but they may run into a variety of other problems instead, such as much higher interest rates and harm to their credit score.

Source: New York Times, “The Risks of Transferring a Car Loan to a Credit Card,” Ann Carrins, March 18, 2013.

Information about managing debt and getting out of credit card debt can be found on our Florida bankruptcy site.

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