Credit Card Guide
What is a Debt Revolver?
The term "revolver" is applied to a person who, rather than paying off a debt, will replace the debt due for payment with a new debt. This is known as "rolling over" debts -- for example, taking out a loan to repay an existing loan with another lender or by refinancing the existing loan. The debt is not reduced, simply moved from one lender to another.
Credit card revolvers are particularly common as it is fairly easy to complete a balance transfer from one card to another. A revolver wishing to roll over credit card debt will generally do so using credit cards which offer an interest free period on balance transfers.
The Debt Revolver
A debt revolver is in the unfortunate position of never reducing their debts. They are constantly rolling over debts and never actually manage to pay them off or even reduce them significantly. It is much more financially sound to try to pay off debts and avoid rolling over credit card debt. However, debt roll overs are commonplace across the globe and are sometimes essential. The practice of rolling over debt is as old as the concept of the IOU.
Using Balance Transfers to Roll Over Debt
A credit card roll over is most commonly referred to as a balance transfer. It involves transferring one credit card balance over to a new card, essentially allowing you to roll two credit card debts into one. Generally the balance should be transferred to a card with a lower rate of interest, or if possible one which offers a 0% balance transfer offer for an extended period of time. In theory this allows additional time to clear off the debt while eliminating high interest payments on the balance each month.
However, while it is often seen a potential lifesaver by those in major debt difficulty, there is the danger of become a habitual revolver who simply continues to move debts around replacing old debts with new and never resolving their debt problems. There is also the potential for the borrower to reach the stage where banks and credit card issuers will no longer issue credit as the roll over debts will have a negative impact on credit worthiness.
Why Do Banks Offer Balance Transfers?
You may be wondering why banks and credit card issuers would offer people the option of rolling over debts since, especially with 0% balance transfers, they don't make much money from someone who is not really repaying the debt. However, since there is little chance of the balance being cleared within the time frame offered by the 0% balance transfer they will be able to begin charging interest on any remaining balance.
Although some borrowers may simply transfer to another credit card once the interest free period expires, there will always be some customers who will stay with the lender. Since revolvers must roll over debt to a different lender in the case of credit card debt, the bank is hoping that once the debt is cleared they will have gained a new customer for years to come.
In conclusion, a "revolver" is a person who simply transfers debts to a new lender, using new loans to pay off existing ones without ever reducing the balance. If this becomes an ongoing habit they will simply keep their head above water until the point where banks will no longer lend to them.
Although rolling over credit card debts is not generally recommended, in some cases it can be useful to take up the offer of a 0% balance transfer in order to help clear off smaller debts without worrying about high interest rates. However, it is always more advisable to keep credit card spending under control to start with.
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