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Siren song of zero-interest balance transfers worth questioning

In our economy, credit is almost an essential need for us to be able to pursue the ideal of the American dream. Without credit, or perhaps more aptly, without a decent credit score, individuals may find it hard to buy a home.

But as many in Arkansas have come to know in recent years, circumstances outside of our control can force us to use credit card funds just to obtain basic needs like food and clothing. The result can be untenable balances that may go into default and lead to creditor lawsuits. Such actions need to be addressed immediately with the help of an attorney.

Of course, the indicators that we use to tell us how the economy is doing seem to be pointing upward these days. That can be good news for some who have been hurting. But it also has a way of prompting lenders to pump up the volume of their pitches, and maybe even sweeten them, to attract customers to take on more credit debt.

One particular ploy that seems to be in vogue with card companies lately is to offer to take on transfers of nontraditional debt balances at zero interest. Specifically, some cards offer to take on car loans. It's an offer that many credit industry observers say should be taken with a huge grain of salt.

There is at least one reason for their words of caution. They note that your credit score could suffer a slide. When you shift such secured, installment-type loans to a card, they become unsecured debt. Unsecured loans are riskier for lenders, so consumers with a lot of unsecured debt are typically identified as riskier bets by credit rating companies. Thus, their scores could go down.

The experts admit that shifting a car loan balance to a card might be attractive, especially if the window of zero interest is a long one -- say up to 18 months. The argument is that by making the shift, the card pays off the car loan and you get the free-and-clear title sooner. But that also requires paying off the card balance within the zero-interest time period, because any balance held beyond that could wind up incurring a double-digit interest rate.

In that light, "buyer beware" remains good advice.

Source: The New York Times, "The Risks of Transferring a Car Loan to a Credit Card," Ann Carrns, March 18, 2013

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