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Personal Finances / Credit Cards and Consumer Debt
|Subject: Re: Cash out 401K to pay debt??||Date: 6/6/2001 4:17 PM|
|Author: aja91||Number: 74912 of 311495|
Can we extend the argument against 401k loans or withdrawals and HELs to balance transfers? There are a lot of reasons against doing a BT from a 20% card to a new 1.9% offer:
-you risk running up the balance on the old one
-if you close an old account when you open a new one you reduce the average age of your accounts, hurting your credit rating
-you'll get used to paying the lower minimums on the new card and then when the deal expires you'll be that much worse off
-if you lose your job you'll be talking to a company at which you don't have a long payment history -- they'll be much less likely to work with you than if you've been a long term customer
Or should we agree that there are risks and benefits of shifting money around, that the person doing it should understand and evaluate those risks and benefits, and individual situations will change which choice is the absolute best strategy?
My hope is that once someone is dedicated enough to paying off credit card debt that they will avoid the temptation of running up new balances.
However, if the time to pay off the debt is, say, over 1 year, it's tough financially to justify paying the additional interest over time.
My suggestion: call every three months on the new card and ask them to lower your credit limit. In that manner you're prevented from running up significant new debt (at least on that new card). And once the old card shows that the balance has been paid off via the transfer, immediately cancel it. You're back to one card, with a gradually declining credit limit.
As to the other issues -- I think those are risks you have to accept, especially losing the job.
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