Losing at balance-transfer roulette

By MP Dunleavey

Like high-stakes gambling, there's no question that the credit-card balance transfer game is a racket. Still, a lot of people think that if they can master the rules of the house, they'll come out on top.

Unfortunately, the deck is stacked against you. And overconfident (or poorly informed) consumers who rely on balance transfers as a means to cope with debt may find themselves sucked into a scary downward financial spiral.

That's what happened to Kimberly Mufferi and Colleen Mastro, two New York friends who started with modest amounts of credit card debt in college and quickly fell into balance-transfer hell.

The temptation of plastic

Like many young people, Kim, 25, is an old hand with credit cards. She got her first when she went to college. She used plastic to pay for living expenses like food, books, gas, car repairs and moving expenses.

Five years ago she read up on balance transfers -- the pros, cons and pitfalls -- and started moving her balances around. "I was always responsible," Kim says. "I never missed a payment, I never made a late payment. I stayed on top of the deadlines."

If she'd stayed the course, she might be within striking distance of a debt-free life right now.

But Kim ran up against one of the biggest flaws in the balance-transfer plan: the temptation of all that empty plastic.

"I'd transfer the balance to the new card -- and I'd end up using the old card again," she admits. "Something would always come up. It would be the end of the month and I wouldn't have enough for rent, or my sister would come visit and I'd take her to dinner. I just kept saying to myself, 'I'll pay it off, I'll pay it off.'"

Kim's financial Waterloo

Now Kim is $21,000 in debt. And although it's distributed between three cards with very low rates -- 0%, 1.99% and 3.99% -- she's about to face an even bigger financial hurdle.

Within months, the grace period on her student loans will run out and she has to begin paying back $50,000 in federal and private loans.

Kim's parents are not in a position to help her, so she's trying to figure out what to do. She had hoped that by maintaining her debt at super-low interest rates she would have it under control.

She is able to pay a bit more than the minimums -- about $400 to $500 a month total. But on a bartender's salary of roughly $2,800 a month, she's beginning to worry: "Will I ever pay off any of my debt this way?"

Caught in a balance-transfer nightmare

If Kim's story illustrates how this strategy can lead you down the rabbit hole to more debt, Colleen's experience shows how the balance-transfer fantasy can turn into a genuine nightmare.

Colleen, 25, got her first credit card in high school, but it wasn't until college that the debt started mounting. "None of this is some wild spending spree," she says. "It's mainly food, which makes me sick."

When she graduated from college in 2004, she had only a few thousand dollars in debt on one card. But the job market was tight and so was money, so it made sense to reduce her monthly payments by transferring her balance to a lower-interest card.

It wasn't long before the house of cards imploded. At one point, she tried to make a transfer, but the new card accepted only part of her balance. "So now I had two cards," she said. "So I tried to do it again, to get all the balances on one card -- and then it got too confusing. I couldn't remember which ones to use, which ones not to use."

Continued: Murphy's Law of Money

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