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Transferring someone else’s balance onto a card that you carry is possible, but not always wise. It can either be very helpful for the person you are transferring the balance for, or it can be very hurtful to you if you take on the responsibility of someone else’s debt by transferring the balance from their card onto yours. Here are a few pros and cons.
Benefits
Some of the things you can get out of a balance transfer from someone else’s credit card to yours is that they have a much better annual percentage rate. Their credit card interest will go down considerably with a credit card balance transfer. The fact that you have paid your bills on time and have a good credit score and credit history will also be advantageous to them in more ways than one, especially if they have had a bad credit history themselves.
If the person that has recently been added to your credit card has a good credit history and is responsible with their spending, it will be a great benefit for you as well. Their good spending habits will reflect on your credit report as well as theirs, because the card is originally under your name. It is important to know if someone can be of benefit to you in this way before you allow them to transfer the balance of their debt onto your credit card.
Fallbacks
The biggest risk you are taking when you allow someone to transfer their debt onto you credit card is if they spend on your card unwisely and build their debt problem back up to where it was before. A lot of the time, when people get in trouble with interest rates because they have bad spending habits, it is very difficult for them to change those habits in order for it not to happen again. The part that makes the situation even worse than it was before is that it is YOUR credit card, and YOU are going to suffer along with them.
If you have bad spending habits, this will rack up their debt and interest rates as well. Say you just got a brand new credit card with a great APR, but you have had some trouble paying your bills in the past. The people you allow on your credit card are going to want to know about this in order to decide whether or not they will really benefit from joining their balance with yours. Just like they can ruin good interest rates for you, you need to be certain that you will not leave them stuck with higher interest rates than they had on their first credit card.
Tips
You finally decide that it’s safe to do the transfer. Now what? Just like shopping for any other card with low interest rates, you need to be careful of what cards you settle for. Be sure to get one with a low fixed rate, and know how much it may increase, when, and why.
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The end of the year has passed. You have survived the holidays, and now you are ready to move on with another year. After all, time marches on. But there is one thing that you have not yet done for last year that is completely unavoidable. It is your taxes. So you are trying to think of every possible way you could get a tax deduction. Then it hits you. Hey, is it possible that your credit card interest is tax deductible?
Sorry, but no. Unfortunately, unlike the interest you pay on your mortgage, your credit card interest is not tax deductible. But there is a way you can make it tax deductible. Still, there are some risks involved. Whether or not the risk is worth it is completely up to you. For you are the one who knows your circumstances. If you really want your credit card interest to be tax deductible, here is what you do.
Refinance Your Home
Sound ridiculous? If you are doing it just to get a tax deduction on your credit card interest, it probably is. If it is that important to you though, refinancing your home can help. It is possible for you to refinance your home and transfer the balance on your credit card to your home loan. That way, you have basically paid off your credit card and do not have to pay interest on it anymore. Now, instead, you have more interest to pay on your home loan, or your mortgage. That kind of interest is in fact tax deductible. By putting all the money you owe from your credit card onto your home equity line of credit, you allow for the interest on your credit card to change to a different type of interest, making it tax deductible.
Risks
You could lose your home. It is kind of a scary statement, yes, but it is in fact true. Not necessarily just because you refinanced it to get your credit card balance transferred, but because it may take longer for you to pay off your home loan. Because it would take you longer and make your balance bigger, it may be difficult to make monthly payments in full and on time.
Whether refinancing your home to get a little extra money from your taxes is the right thing to do is up to you. In my opinion, it is definitely not the wisest thing to do. Better chances of keeping your home is way more important than getting money back from the interest you paid on your credit card. To me, the risk is just too big to take. Having a home loan is burden enough.
We use our credit cards for a lot of things. In fact, we use them for almost everything. Here’s an interesting tidbit: the only thing I’ve found I couldn’t buy with a credit card was a money order. Can you believe that? I want to know what powerful lobbyist in Washington made sure I had to go through the credit card companies’ exorbitant cash advance fees.
Anyway, my point isn’t the slimy lobbyists. My point is that if you’re going to use your credit cards for every purchase under the sun you might as well get paid.
What? Get paid to use your credit cards? In a sense, yes. Rewards credit cards are making it possible for credit card holders to get a little something back. Call it a thank you from the banks – a thank you for those billions of dollars in credit card interest we all pay every year.
Let’s make one thing clear – the credit card companies make a lot of money whether you ever carry a balance on your card. I’m fine with it. Companies need to make a profit to survive. Every time you swipe that card the merchant pays visa a fee. Multiply a few cents times millions of transactions per day and you’ve got large stacks of cash. I’m only telling you this so you understand the credit card companies aren’t going out of business even if you pay your balance every month. So do it.
In fact, the key to making rewards credit cards a good deal for you is to never carry a balance. Think about the different rewards you can get – cash back, points toward purchases, airline miles, etc. In every case, one point or one mile has a dollar value you never think about. For example: if a $50 laptop back costs 1,000 points to purchase, then each point is worth 5 cents. So you get 5 cents for every point, and you usually get 1 point for every dollar you spend.
That’s all great right? But wait, what if you spend $500 per month on your card, and you carry the balance from month to month. It’s not going to take very long before the finance charges will far outweigh the rewards points. I doubt they want you thinking about that. They want you thinking about the ‘free’ stuff you can get.
Listen, I want you to take advantage of rewards credit cards. I love mine. I take at least one trip each year courtesy of American Express or Capital One thanks to their airline miles programs. All I’m saying is you have to make sure those ‘free’ miles don’t cost you hundreds of dollars.
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I suggest that you find a credit card interest calculator to be able to find out how your credit is and how it can be affected based on how you spend using that card. This tool is going to help a lot of you to figure out how important it is to pay off your bills. One of the best ones that I had found was at webwinder.com. It is pretty staggering to think about it when you see what would happen with minimum payments only being paid on these balances.
To give you an example of what could happen I threw in some numbers into the calculator. I simply charged $2,000 on this calculator for the balance. Then I did an annual interest rate of 14%. After that I put in a minimum payment of 2% or $10 depending on which one is higher. So I calculated it and it came out kind of mind boggling. The interest would be $2,354 dollars and it would take 242 payments to pay it off. That would be over 20 years before that charge of $2,000 was paid off. That is absolutely nuts. You will have lived a quarter of your life before you are able to pay it off. That isn’t a pleasant thought.
I think this shows why it is so important to calculate your debt and find safe and faster ways to pay off interest and get to the principal. These calculators give you a good understanding and at the same time it is probably important to get a financial adviser to help you pay off your debt quicker. It is hard being in college with a lot of student loans because of ridiculous tuition fees.
You have to worry about a lot of debt already so the last thing you want to do is worry about paying off credit card debt. You have a lot more control over this issue because you can budget safely within your lifestyle. This is a hard habit to make for a lot of college students that are trying hard to impress the opposite sex, but it will be even more impressive if you can avoid a lot of needless debt going into a relationship. If you can build those habits of living within your means now then it will help you throughout marriage and especially for the example that you teach to your kids.
Use these calculators to evaluate your debt and make sure to pay off the debt with higher interest rates first. So if you have student loans and credit card debt then stick to paying off your credit cards first and then focus on your student loans.
