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Should You Transfer Your Car Debt to a Card?

Did you know that you can trade your car loan debt for credit card debt? That's right! Many credit agencies are now allowing consumers to effectively pay off their car loan with a zero-balance credit card transfer, a situation that allows you to trade the secured debt for one that is unsecured. Strategic transferring can, in fact, save you up to $1,000 in extra charges. Is this a one-size-fits-all tactic, or should people use discretion when considering their debt relief actions? Experts weigh in on this unconventional debt management method.

People who have just one to two years left on their car loans would likely benefit most from this provision. This allows consumers to secure the title to their vehicle faster than expected.

Still, this type of debt transfer is risky because consumers must be certain that they will be able to pay the loan in full by the time the zero-percent interest grace period expires. Otherwise, you could be stuck with a loan that has double-digit interest, a situation that may be worse than simply keeping the original car loan. This move could also have a negative effect on your credit score, according to experts, because you are trading installment debt for revolving debt.

Instead of transferring your car debt to a credit card, you should consider simply saving more money and paying the loan off earlier, according to financial gurus. If you are close to paying off the loan, shifting the money into another form of debt could actually decrease your credit score. Furthermore, zero-interest credit cards are generally only offered to people with outstanding credit; those consumers would not need to transfer their debt, anyway.

When it comes to debt management, creative solutions are sometimes viable options, but they are often simply trading one type of debt for another. Think carefully before you decide to transfer secured and unsecured debts. There are many other ways of accomplishing debt relief as well; severe debt may require a bankruptcy attorney.

Source: New York Times, "The risks of transferring a car loan to a credit card," Ann Carrns, March 18, 2013

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