What is Balance Transfer on credit cards?

Credit card holders should play smart when it comes to dealing with their credit card debt. Your outstanding has a way of sneaking up on you as you rack up high interest charges on your balance. Sometimes, it might accumulate to a point where you find it impossible to pay off the due amount. Your inability to pay off your bills fully will lead to a decrease in your credit score as well, making it difficult for you to apply to lenders for new credit. 

There are two ways to counter this situation: One, you can take a debt consolidation loan at a lower interest rate and affordable EMI and use it to pay off your entire balance, and two, you can transfer the entire balance onto another credit card. Many credit card issuers in India offer balance credit card transfer facility with the intention to attract new customers.

What is a balance transfer? Simply, you can transfer your outstanding while getting a break on paying interest charges for a limited introductory time period. This could be 6 months or 12 months or even more. However, be warned that once this reduced interest period is over, you will have to pay regular interest rates. It only gives you a buffer period in which you can try and manage your finances so that you can pay off your debt.

Whom it is recommended for: If you've maxed out multiple credit cards, can’t keep a track of your payments and often end up paying late fees, putting all your eggs in one basket might actually be a good idea for once. You'll have just one credit card to keep track of and only one payment to make each month.

Following are some of the benefits of doing a balance transfer:

• Helps you save interest money on your existing credit card as the interest rate on balance transfer usually is lower.

• Minimal documentation.

• Convenient, hassle-free and quick processing

• You can also transfer debts from multiple cards to a single card.

• Some credit card issuers also offer zero balance transfer with an interest-free limited period - although keep in mind that it is offered only for a certain period to enable you to pay your outstanding. Also, the low interest or 0% interest is valid only on the balance transfer amount; the rest of your purchases attracts the regular interest rates.

The downside: Making a balance transfer isn't quite as simple as it sounds. It is not just making a swap from a high interest rate to a low interest rate. You will be required to pay a balance transfer fee, which is typically a percentage of your total outstanding. This means that larger your debt, the bigger your fee. Having a reasonable credit score helps if you want the best terms and conditions.