When Helping May Be Hurting: Take Caution With Credit Card Balance Transfers

Jul 17, 2019

Here’s a situation I see too often - a young adult child runs up a credit card bill. Mom and Dad find out and learn that the interest rate is outrageous. Then they come to me asking how can I help him transfer the balance to another card with lower interest?

My question is, “Why would you want to do that?”

The answer usually involves high interest rates being wasteful, etc. OK, we can agree on that.

But that is not this young adult child’s most pressing problem. In fact, I fear that when a young adult child is helped with a credit card balance transfer, the risk of making the problem bigger increases exponentially.

In my experience, balance transfer often equals responsibility transfer. 

[Rarely do I see such moves help the problem – in fact, it may merely delay both the admission of the real problem and the administration of the inescapable solution.]

The problem is not a high interest rate. The problem is a low responsibility rate.

This young adult child has run up a big credit card bill. Ninety-nine percent of the time that is the result of irresponsible spending. So now comes the time when he has to pay the price…with interest. 

Paying off a large credit card bill (one made large through irresponsibility) can be a valuable, if expensive, lesson for a young adult. Beware what actions you take as a parent, lest the lesson taught is that if I run to Mom and Dad, they’ll make it all right. 

Some balance transfers can make sense mathematically. Others are just outright rip offs. 

[Watch for hidden fees, high transfer fees and temporary “introductory” periods, after which interest rates shoot back up to 20% or more.]

But it isn’t the hidden fees that are the biggest problem. It’s the human nature. You can change the bank that issues the card, but have you changed issues of the card holder? If your child doesn’t buy into the fact that his spending decisions have consequences (good or bad), this credit card problem won’t go away anytime soon.

And the best method for teaching him self-control is by letting him experience the consequences of his behavior to date. Let him pay off the card by himself.

Suppose I run up a $2,000 balance on my credit card, which charges me 20%. The card company tells me that I can just keep paying the minimum, which would likely be about $50 per month. But at that rate, it could take over 5 years to pay off…if I stop adding to the card balance now.

But if I’ll just double the payment to $100 per month, I can get the card paid off in just two years. And if I do a balance transfer to a lower interest rate? At best it might shave two or three months off the payback time.

I’m not against all balance transfer deals. What I am against is using such deals as a focal point for delaying the real issue – behavior modification.

My advice to you, parent to parent: if your child asks for your opinion, give them a transcript of this audio with a note, “I saved this in case you ever asked.”

And if he doesn’t ask your opinion? Keep it to yourself. It’s your adult child’s issue. 

Let him own it, solve it and learn it for himself.