Those considering a trust deed could benefit from credit card balance transfers

1st August 2011

Few people or products can truthfully be described as being the “best ever” at what they do. Apparently Barclaycard have bucked the trend; the media is reporting that they have launched the “best ever” balance transfer credit card which could benefit those considering a Scottish trust deed­. The fee is a modest 2.8%, after which you get a whopping two years of interest free credit on the transferred balance. The competition doesn’t come close; MBNA and Virgin offer a period a full five months shorter than Barclaycard as we write.

Are credit card balance transfers a good idea where debt repayments have already become difficult and a trust deed looks inevitable? It’s a tricky question as it will depend upon the unique circumstances of any individual. However, for some trust deed candidates these types of balance transfer can end up being dangerous and risky.

Of course saving on interest costs isn’t a last resort; whereas a Scottish trust deed should be. We’re not advocating that people should immediately consider a Scottish trust deed rather than transferring their credit card balances to a cheaper source of credit. In fact, professional debt and Scottish trust deed advisers should consider whether their clients can rearrange their finances in way that restores affordability and avoids the need for formal debt solutions. For most people, cutting their interest costs is a very good thing indeed.

For a few people however, it’s extremely dangerous and can make a debt problem much worse. Here’s why…

Debt only becomes a problem when the repayments aren’t affordable. When this happens either payments are missed, or extra debt is secured to repay existing debts. Moving a credit card balance may reduce someone’s credit costs, but what if their overall debt repayments remain unaffordable? They’ll either miss payments or find additional debt to manage their situation for a bit longer. Of course the additional debt is extremely easy to find, because in the kitchen or bedroom drawer there’s a credit card with a zero balance because it’s just been transferred elsewhere. The card gets used and the repayments next month become a little higher so the card is used again. It carries on, and it’s known as a debt spiral.

Scottish trust deed advisers therefore suggest that anyone with debts consider what their financial position will be after they achieve a credit card balance transfer. Write down your income and your bills/expenses as they will be after the transfer. Do they add up OK? If yes then great, go ahead with the balance transfer. If they don’t add up still, it’s time to take a step backwards. Transferring balances to a new card will not fix the situation; it will just provide some temporary relief. The cards that have been cleared are likely to have to be used again and your debts could grow quickly.

That’s the sort of scenario that often leaves people in need of serious debt solutions such as a Scottish trust deed . Had the problem been addressed at an early stage, it’s possible that much less serious non-insolvency measures could have been used.

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