If you have a high outstanding credit card balance and are paying a high interest on the same, you could consider going for a credit card balance transfer.
It would allow you to pay off your huge credit card bill usually at a relatively lower rate of interest.
Says AK Narayan, CEO, AK Narayan Associates, a financial planning firm: “Credit card balance transfers are a good option to pay off huge credit card bills. However, the transfer of credit card balance makes sense only when the bank that you are transferring your balance to offers rates that are more lucrative than the original credit card on which you have pending dues.”
That said, there are certain things you need to keep in mind while going for a balance transfer option on your credit card.
Benefits of a credit card balance transfer: Besides reducing the additional interest that you need to pay, you also get a zero per cent interest rate period and also a certain period with zero interest rates.
Says Dilshad Billimoria, certified financial planner, managing director, and principal officer of Dilzer Consultants, a financial planning firm: “This is hugely beneficial, because the savings would be high with zero processing charges. If some cards have processing charges, then compare the processing charges to the savings made in doing the balance transfer. Only if the savings are more than the charges, does it make sense to proceed with this option.”
Downsides of a credit card balance transfer: If you are doing balance transfers frequently, then it could adversely affect your credit score. Hence, doing frequent balance transfers and delaying the payment of interest is not very a good idea.
Credit card balance transfer process: To initiate a credit card balance transfer process, first check your current outstanding dues, interest charges, and penalties. Find a credit card that offers you a lower rate of interest, or better still, if it offers a zero per cent introductory annual percentage rate (APR). Also, be sure that the credit card has no annual charge. Next, check that the credit limit is sufficient, given the outstanding debt. Then, assess the balance transfer fees. Make an application to your new credit card issuer and clear your debt as soon as possible.
Things to note: The most important point to note about credit card balance transfer is that you can transfer only that amount to your new credit card which is within the credit limit.
“So, if your second credit card has a limit of Rs. 50,000 and your pending dues from your previous credit card are Rs. 75,000, then only Rs. 50,000 can be transferred to the new credit card under the balance transfer scheme,” says Narayan.