Understanding Credit Card Balance Transfers

Balance transfer is a great option if you are struggling with piled up debts for a long time but have a fair credit score.

Anuj had overdue balances on two of his credit cards. He could only afford to make the minimum payment on both of his cards so that his credit score would not get affected. But the accumulating interest kept toppling his finances month over month. He got the offer of balance transfer from SBI. Though hesitant at first, he applied for a new SBI Credit Card. He got a good credit limit and could transfer both his balances. By paying off in EMIs, he could easily get rid of his credit card debt. As the name suggests, balance transfer is the process of transferring overdue balances from one credit card to another so that you can save on the interest payout and regularize your budget. Most of the banks offer the facility of balance transfer on some of their cards. A few banks also offer teaser rates for balance transfer under which you can enjoy lower rates of interest. Let’s delve deeper to understand how a credit card balance transfer can help you. How credit card balance transfer works? At the time of balance transfer, you must have available credit limit more than the total outstanding amount on the other card. You can send an online request for the same by logging into your bank’s net banking portal or you can also call their customer care department for the same. You would have to provide your credit card number whose balance you would like to transfer. Mostly the transfer takes place in a few minutes. There may be two ways in which the bank transfers the balance. One, they will immediately pay the card balance and EMI will be created for it in your new card. Two, the bank may send a draft for the amount of balance that you wish to transfer. You can use it to pay the balance on other card. Why opt for credit card balance transfer? You can transfer the balances from one credit card to another because of the following reasons-

• Consolidating the Debts

Having overdue balances on multiple credit cards can wreak havoc on your finances as each of these will accrue interest. Moving multiple balances into a single credit card will help you manage your debts better. After all, paying a single credit card EMI is better than paying them on several cards at the same time.

• Availing a Lower Rate of Interest

Balance transfer is especially beneficial for you if your current credit card has exorbitant rate of interest. When you transfer the balances, the new credit card issuer would offer you a promotional rate which will save you from high finance charges on revolving credit. Also, if you find a credit card with lower finance charges, it will help you save even after the promotional period is over.

• Switching to Credit Card with Better Terms

Moving your balances from one card to another also opens up chances of getting a credit card with better terms and conditions. Most of the basic credit cards do not have rewards and benefits aligned to your purchase behavior. So, when you get to a balance transfer, you might as well look for cards with better offers. Things to Keep in Mind at the Time of Balance Transfer Balance transfer is good for various reasons but you need to know a few things before opting for it so that you don’t end up regretting. Let us talk about these in detail.

• Transferring is not same as paying

The basic concept behind balance transfer is that you are paying one credit card using the limit on another. You still have to pay back the entire balance, may be at a lower rate of interest but you do need to service the EMIs. In fact, you can get the benefit of such transfer only when you keep paying the EMIs. If you don’t, you will again be stuck in a debt spiral.

• Fees and Charges are inevitable

Balance transfer is not free. Banks charge a processing fee which is usually a percentage of the outstanding amount that you wish to transfer. You will have to pay this fee to initiate a transfer. Though you save on the total interest payout, you would have to bear a little in the form of such fees and charges. Before the transfer, it is important to research about the fees associated and then decide whether it would be a good idea.

• Promotional Offers Expire

Banks offer promotional deals on balance transfer. For example, a zero interest six-month balance transfer. An important thing to note here is that such promotional offers have an expiry date. In the above example, after the six-month period expires, you will be charged interest on the outstanding amount. This interest might nullify the benefits of such transfer. So, you must ask your bank about the terms and conditions associated with promotional offers on balance transfer.

• New purchases add to the debt

After you have transferred your balance, the limit on your old card will be available to you. But you should not start ringing new bills on the card because they will add to the debt. It is really easy to get stuck in a debt spiral if you get a little careless about the expenses. Balance transfer is a great option if you are struggling with piled up debts for a long time but have a fair credit score. Compare the cost of such balance transfer with how much you would save and then decide. Control your expenses for a few months after the transfer so that you have enough time to put your budget together.