What Should You Do If You Don’t Qualify for a Balance Transfer?
A credit card balance transfer, when you move debt from one or more cards to a different credit card, can help you save money and make managing your debt easier. After consolidating multiple debts, you’ll only have to worry about one payment each month. Plus, some balance transfer credit cards offer an introductory zero-percent interest rate on transferred debt.
Perhaps you’ve considered a balance transfer and compared different balance transfer credit cards and offers. Despite some risks associated with balance transfers, they are often favorable if you have good credit and qualify for a long period of low or no interest. But, what can you do if you determine a balance transfer card won’t work out? Maybe you aren’t able to get approved or can’t secure a credit limit that’s high enough to accommodate your debts.
Well, you won’t be out of luck entirely. Here are four alternatives to a balance transfer credit card.
An Unsecured Personal Loan
You could consolidate your debts by taking out a personal loan and using the money to pay off your credit cards. With a personal loan, you’ll know exactly how much you need to pay each month and when the loan will be repaid. This could make managing the repayment process easier than it would be with a balance transfer, because often the minimum payments on a balance transfer card aren’t enough to pay off the debt before the introductory period ends. However, while the repayment may be easier to calculate, it’s still likely not as favorable as a balance transfer in terms of interest rate and thus total amount repaid.
Depending on your credit and financial situation, you may be able to find an unsecured personal loan with a lower interest rate than your credit card debt. What sort of rates and terms should you expect? Well, with a poor financial profile and low credit, the interest rate might be above 10 percent and some lenders may not approve the loan at all. With an excellent financial profile and credit, the interest rate could be below six percent (at the time of publication, two popular online lenders I found are offering rates at 5.25 percent and 5.95 percent). In either case, you could save money compared to the high rates on many credit cards. But, don’t expect to find a zero-percent interest offer like those available with balance transfers.
Note: there are also products out there that are very similar to personal loans but don’t require a credit check. One such example is a payday loan, or you may also see the term “bad credit personal loans.” You should avoid these financial products at all costs. Not only are they extremely dangerous and expensive, but the numbers just don’t add up. The interest rates on these products are more than on your credit cards. Remember that it’s not a good idea to roll debt over from a lower interest rate to a higher one.
You can apply for personal loans online, at banks, and at credit unions. You can shop for a loan to find the best offer, as some lenders may be able to give you approximate terms with only a soft pull on your credit. Before moving forward and applying for the loan, look for potential fees or penalties. Some lenders charge an origination fee (often a percentage of the loan amount), and you may have to pay a pre-payment fee if you pay off the loan early. If you’re in the market for a personal loan, be sure to consider online lenders and P2P lenders, where you might find better interest rates and terms than at a traditional bank. Your mileage will vary, so be sure to shop around.
A Secured Loan
Similar to the process with an unsecured loan, you could consolidate your debts by taking out a secured loan and paying off your credit cards.
Secured loans may have lower credit requirements and interest rates than unsecured loans, but you’re also taking on a lot more risk. You’ll need to put up something valuable as collateral, such as your savings, home, or a vehicle. If you’re unable to make payments, the lender could take the collateral. This is a serious risk and you should consider the potential impact before applying for a secured loan. Although you may intend to make every payment, what happens if there’s an expensive medical emergency or you lose your job? It’s for these reasons that Clearpoint strongly urges consumers not to use secured debt consolidation as a method of debt repayment.
If you choose to move forward with a secured loan, remember you can shop around with online lenders, banks and credit unions, just like with an unsecured loan. Secured loans may not have as stringent credit requirements as unsecured loans, though some lenders may not approve your application if you have poor credit. Secured loans may also have origination and pre-payment fees.
Improve Your Credit and Try Again Later
Another option is to take steps to improve your credit over the new few months and then apply for a balance transfer credit card. Putting in the extra effort and time could be rewarded with a higher credit limit or loan amount and lower interest rates.
Improving your credit isn’t often a speedy process, though, as derogatory marks may remain on your credit reports for up to ten years. However, there are a few ways you may be able to improve your scores quickly.
You could review your credit reports for erroneous derogatory marks and dispute them. You could also write a goodwill letter to a creditor, which may result in late payments being taken off your reports. Your credit scores could increase as soon as the credit bureaus remove the negative marks.
Another area to focus on if you’re looking for a quick change is your credit utilization, the percentage of your available credit that you use. Try to pay down the debt on each credit card to below 20 to 30 percent of the card’s credit limit. You may see a rise in your credit scores soon after the issuer reports the new balance, often around the same time it sends you your monthly statement.
Your individual situation will dictate how you proceed. If you desperately need to make headway on your debt, then boosting your score and reapplying might not be an option. But if your situation still seems manageable, taking a few small steps to build your credit and then getting a balance transfer may be the most favorable outcome for you. (Just remember that balance transfers aren’t perfect, either. If you don’t pay off your balance before the promotional period expires or if you take on new debt via purchases on the card, you might wind up in an even worse financial situation.)
A Debt Management Program
If your situation is more dire, and you can’t or wait for your credit to improve, or if you are looking for help with the repayment process, a debt management program may be another option.
Although there is a monthly cost to the program, once you join your creditors may agree to waive late or over-limit fees and lower your debts’ interest rates (often down to the single digits). You’ll also only need to make one monthly payment, which Clearpoint will then distribute to each creditor. This has the benefits of “consolidation,” but actually isn’t. You still pay everyone you owe without taking on any new accounts.
If you have poor credit and don’t qualify for a personal loan or a balance transfer offer, this may be one of the few ways to lower the interest rates on your existing debt. It may also be one of the safest remaining debt repayment options available to you.
Which Is Best?
Determining which option best suits your needs and desires can be difficult. Excellent credit often leads to the most options, but even with poor credit and limited resources there may be ways to lower your interest rate and make managing your monthly payments easier. A free credit counseling session might make things clearer. The counselor can help you evaluate your options, offer recommendations for ways to improve your credit, and compare the pros and cons of each option.
I am in a Catch 22. I need to qualify for a Balance Transfer. Every time my credit is checked, it makes my credit score go down.
I understand your frustration, Lee, and sorry to hear that! If you haven’t already tried this, you might want to keep an eye on your credit score through a third-party tool, and once it’s up to the level where BTs are usually approved, you could try applying again.