Still, due to reckless spending behavior, many customers fail to make timely debt repayments, particularly prior to the expiry of the promotional period. Hence, the creditors stand to make money from the interest paid by the customers.

Once the teaser rate period or the grace period is over, they levy different charges on the existing balance on the card. Also, some balance transfer cards are offered with T&C that different interest rates are charged for new purchases.

Also, you may need your creditors' approval to opt for the balance transfer to consolidate your credit card (cc) bills and pay them off.

Advantages of consolidating credit card debt with the balance transfer method

• You can repay debts at 0% or relatively lower interest rate.
• Consolidate and pay off your multiple cc bills through single monthly payments.
• You can manage your finances better.
• Your credit score may improve after paying off the entire balance.
• You can get away with predatory loan terms like high charges, poor grace period, etc., and get something much more convenient and helpful.

Disadvantages of consolidating credit card debt with the balance transfer

• The interest rate for a balance transfer (on a new purchase) may be more than the existing credit card interest rate.
• Usually, you have to pay a balance transfer fee, which is a percentage of the amount transferred. Add to this the annual fee of the card.
• You may not qualify for the 0% interest rate if your credit score is not good.

Do's and don'ts of credit card balance transfer

While trying to consolidate credit card debt through a balance transfer, you need to review its do's and don'ts.

The Do's:

• Check out the introductory period - It is important to know the introductory low-interest-rate period if you're taking out a balance transfer card for the purpose of consolidation. This is because you need to repay the remaining balance at a significantly higher interest rate, once the introductory period is over.
• Plan a budget to save more - It is quite important that you plan a suitable budget and try to save more every month. Use this money towards paying off your outstanding credit card balance. The faster you pay the balance amount, the more you'll be able to save.
• Compare offers - Before signing up for a particular 0% balance transfer card, you need to compare different card offers. The terms and conditions vary according to the companies. Some credit card companies may offer a longer 0% introductory rate period. The transfer fees and interest rates after the promotional period will also vary. Thus, it is wise to shop around for such offers.
• Check out credit score - Before applying for a balance transfer, it is better to check your credit score. If you have a low credit score, your application for the 0% balance transfer card may get rejected.
• Read the fine print - Before taking out the new 0% balance transfer card, read the fine print carefully. Check by how much the interest rate will increase after the 0% period. In addition, check the transfer fees. If needed, talk to the card company for explanations.
• Pay the balance transfer fee - You will be charged a balance transfer fee, which you are supposed to pay. This will vary from company to company. It is usually about 3% of the transferred balance.

The Don'ts:

• Spend lavishly - Don't start spending lavishly after opting for a balance transfer method. It is advisable to not use your credit cards until you clear your dues completely. Otherwise, you'll not be able to come out of the debt loop. And, most importantly, try to repay the outstanding balance as fast as you can.
• Close your old credit cards - After transferring your balance, you may decide to close some of your credit cards with high-interest rates. However, before doing so, check out whether or not they are your oldest credit cards. Closing the oldest credit card will lower your credit history. In turn, this may lower your credit score too. This is because your credit history is one of the major factors involved in credit score calculation.
• Don't forget to revise the transfer - After transferring the balance from the old high-interest cards to the 0% balance transfer card, check with the new creditor, and also the old ones, whether or not the money has been transferred properly.
• Don’t transfer online - Some credit card companies offer you to transfer the balance online when you apply online for a balance transfer card. However, you should avoid doing so; because you won’t come to know about the long term interest rate that will be charged after the balance transfer period. Moreover, the old credit card companies may not allow you to transfer the balance online.
• Don't use it for purchases - Don't use the 0% balance transfer card to make any purchases. If you use this card to make purchases, the creditor can charge a high interest on the card. Thus, you will be incurring a huge amount of debt.

Well, by now you have understood what balance transfer is all about!

But, what do you think? Is it an awesome solution?

Ok, let me put it this way, are you aware of the intricacies attached to balance transfer?

Let us discuss it in detail.

Consolidating debt can worsen your financial condition

Transferring your high-interest debts to a card with a lower rate of interest becomes easier to repay your outstanding balance in your credit cards.

But it may also entice you to take on additional debt and increase your debt burden.

Moreover, some balance transfer cards have the terms and conditions that any new debt collects a much higher rate of interest. Only the debt you’ve transferred qualifies for the zero or lower interest rate.

However, some cards offer low-interest rates for new transactions too.

So, know about the terms and conditions in detail and resist the temptation to incur additional debt on your balance transfer card.

However, as already discussed, do not close the card even after transferring the balance. This is because the credit limit won’t decrease and that helps you to maintain or improve your credit score.

It is an introductory period low rate offer only

The teaser rate of zero percent or exceptionally low rate of interest often entices customers to opt for it. However, remember that it’s only for the introductory period that usually lasts for 6 months to 1 year. Occasionally it may be more than a year. So, read the T&C carefully and follow the statements sent by the company to know exactly what’s happening with your card.

If you have an unpaid balance on your card after the promotional period is over, you may have to pay more on interest than what you had been trying to get rid of.

So, even if you make new purchases with your balance transfer card, make sure you repay the entire balance within the introductory period.

Gather knowledge of how the credit card company will allocate your payments

If you have your transferred balance along with the outstanding payment on the new purchase, then it’s on the company how it will allocate your payments.

It may apply for the transferred balance or to the new purchase.

Usually, you can’t instruct your credit card company what to do.

As per the Credit Card Act of 2009, the credit card companies need to allocate your payment, more than the minimum, to the debt with the highest interest rate. However, the companies can apply the payment to the lowest interest debt and thus, increase interest charges on the highest interest debt.

This usually happens when you do a new purchase with your balance transfer card. Therefore, it may be a good idea to avoid using your balance transfer card for any new purchase.

By now, you must be thinking of how long it takes to do a balance transfer from one credit card to another.

Well, you may have to wait for about 6 weeks to get it reflected in your accounts. However, many credit card issuers may complete the process within a week too.

You will have to pay a fee to opt for a balance transfer

Do you think you can transfer the balance to a low-interest rate card free of cost? No, not really. In most cases, you will have to pay a percentage of the total amount you’re transferring to another card.

Usually, the fee for a balance transfer is about 3% of the transferred amount.

So, if you transfer $20,000, then you’d have to pay $600 as fees. It will get added to the outstanding balance on your card.

If you’re fortunate enough to get a hold of a card that’s free of cost, then the introductory period might be comparatively less. So, weigh your options and make your decision wisely.

Good credit score plays an important role

Here also, in the case of a balance transfer card, your good score can help you take out a zero interest rate card. Before the recession of 2009, zero rate cards were offered quite a bit. But, things have changed now.

In the present times, if you have a good or excellent score, it’ll help you obtain a balance transfer card at zero interest or at an exceptionally low rate. It goes without saying, it will help you a lot to repay your balance at zero percent interest rate.

So, what will you do if your score is not good? Don’t worry! Look for other options to consolidate and repay your credit card bills.

“You can transfer balance again and again” - Think again!

If you think that once the introductory period ends, you can simply transfer the balance to another card and that will continue for some time.

Yes, you can do that. But hold on!

Transferring your credit card balance, again and again, can hamper your credit score and it can go down a bit.