There might arise a situation when you are unable to pay the outstanding amount on a particular card due to personal or financial reasons.
Possessing more than one credit card is quite common these days as it is the best way to pay later and having multiple cards allows you to avail maximum benefits. Besides, credit cards help you in meeting financial emergencies when you do not have cash.
But of course, there are obvious charges and interests of availing such facilities. Where most banks offer you a fifty day interest-free period, provided you pay back the entire amount spent, in some cases, you have to pay a minimum amount to keep your card active and for using the credit facility.
However, there might arise a situation when you are unable to pay the outstanding amount on a particular card due to personal or financial reasons. If you continue not to clear the due it will risk spoiling your credit score which later can harm your borrowing capacity. Hence, in such a situation, transferring you credit card balance can be of great help.
What is transferring of credit card balance?
This facility allows you to transfer the amount due on one card to another which has lower or zero interest rates compared to the first one. The credit limit of the second card should suffice the outstanding amount on the first card. And ideally have some balance left.
When should you make a credit balance transfer?
Ideally a balance transfer on a credit card should be opted for only in case of situations, where you are not able to pay you outstanding amount at all. For example, if you have a debt of Rs 50,000 on a card offering 15% interest rates, then you can pay a monthly instalment of Rs 8958 including interest to pay off the debt in six months. But if you transfer the credit card balance to a zero per cent card, you pay a monthly instalment of just Rs 8333 in six months to pay off the debt and in turn save Rs 625 per month.
There is another option to go for EMI option on the card that has accumulated huge debt. This option is feasible as interest rates on EMI conversions of debt on credit cards are lower compared to interest percentage charged on normal credit cards.
Additionally, if you are looking for more options, you can not only transfer debt, but can also move loans for cars, household items, and other EMIs on a zero-interest credit card.
Word of caution
Fees are unavoidable: If you wish to use the ‘transfer the credit card balance’ feature, you have to pay some fees for using this service. The transfer fee is calculated as a percentage of the total amount you are transferring.
Earlier, there was a cap attached to transfer fees, but now, you may get charged 3% of the total amount you are transferring. For instance, if you are transferring Rs 50,000, you might end up paying Rs 1500 as transfer fees. Hence, you must calculate whether the transfer fees would be less than the interest rebates you will enjoy on transferring to a zero interest card.
Restrictions: There are certain restrictions on transferring the credit card balance. Restrictions like minimum transfer amount, maximum transfer up to 60% to 75% of card limit, usability record of card for a minimum of six months, are some of the top factors determining balance transfers. Moreover, banks may check your credit score before giving you the privilege of balance transfer. Hence, weigh the pros and cons before opting for this service.(The writer is CEO, Bankbazaar.com)