Balance transfer: Know intricacies to take full advantage of it

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Balance transfer: Know intricacies to take full advantage of it
Balance transfer: Know intricacies to take full advantage of it

Balance transfer! We have become accustomed to this term. We know that it helps a lot when you’re dealing with credit card balance transfer.
But, is it an awesome solution? Ok, let me put it this way, are you aware of the intricacies attached to balance transfer?
At least, have a clear idea about the balance transfer method before you choose this option to repay your high-interest credit card bills.
Check out how to transfer credit card balance to another credit card; or in other words, how to transfer money from one credit card to another.
Let’s check out some of these intricacies attached to balance transfer.

Consolidating debt can worsen your financial condition

In balance transfer, you transfer your high-interest debts to a card with a lower rate of interest. Doing so, it 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 collect a much higher rate of interest. Only the debt you’ve transferred qualify 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.
In this context, tell me what happens to your old credit card after balance transfer?
It is better to 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 entice 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 does 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.
When you open new low-interest rate accounts that carry a high balance amount, your future creditors and lenders can consider you as a risky customer. As a result, you may have to pay much higher interest on your secured high price items like buying a car or even purchasing a property.
So, think about all these consequences and decide carefully so that you can emerge as an intelligent debtor to take advantage of balance transfer totally.

Last Updated on: Fri, 13 Dec 2019

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