Facing unruly with credit card balances after swiping it for New Year plans? Is your budget and saving hurting due to high credit card balances? Yes? Then ‘Balance Transfer’ could be a convenient option available to you.
Heavy Credit card usage is a common thing now-a-days. Many a times for expensive gifts we prefer to swipe credit card rather than debit card. But every swipe could cost you more as it comes with a high interest rate! Balance transfer could be a better way to reduce that high interest rate burden.
So, let’s first try to understand what a Balance Transfer is.
Balance Transfer is nothing but the transfer of (part of ) balance from one credit card account to another. Many banks offer variety of balance transfer schemes. There are different types of offers like zero interest rate with specified repayment period or with longer periods at lower interest rates. But before going for it do your own homework and then go ahead if it suit’s your needs.
Balance transfer may sound very good idea but it’s not easy as swiping card and not suitable for every individual or situation. One should always be careful before initiating the process. A well planned balance transfer could help you pay off your debts quickly. On the contrary, if you just want to grab it as an opportunity for new purchases or to delay payments then it may ruin your financial health.
Following are some points which you should take into consideration before transferring your dues to other credit card:
- This works if you have multiple credit cards. The high dues can then be balance transferred. This technique can be used as a consolidation tool where you pay your debts at low interest rate and save money.
- Tracking multiple credit cards, its dues and due dates is tedious and time consuming. Balance transfer can save your time and extra efforts by consolidating them to just one.
- Read all the conditions apply, fine print, applicable fees and charges before you take that step. There are transfer charges that depends on the amount you are transferring. If the transfer charges are high with high minimum payments and short duration then it will not crack the purpose.
- Take into consideration the amount of time available for zero interest offer. For how long the offer is valid as some schemes have come with a defined time period (limited period) for zero interest after which they charge and it might be on higher side.
- Figure out the charges for new purchases on your new credit card. Zero interest rate does not simply means no charges on new purchases.
- Before approaching a new bank with the offer check with the existing bank. This might prove beneficial as you are already a client of bank.
- How are the Transfer charges – are they flat or applicable per transfer.
- New credit card issuers often doesn’t reveal the new credit limit applied while your application is in process. Collect all required information.
- Consider your repayment capacity. Low interest rate should not be the only base factor for transfer.
- Credit utilization ratio* is an important factor for calculating your credit score. Therefore transferring high interest credit card to low interest credit card may have negative impact on your credit score.
- Repeating balance transfer may have negative impact. It makes an impression of ‘risky client’ to banks or credit institutions which may deny loans at later period of time.
- Transferring credit card balance does not mean to spend more but to take advantage of low interest and paying off the dues as soon as possible.
I am sure the above points will help you take the right decision next time you swipe that plastic card!! Happy Shopping!!
*Credit utilization ratio is the total amount due on your credit cards compared to the card limit.
- The Economics Times