The process of moving outstanding debt (s) on one credit card to another is a balance transfer. These transfers are usually beneficial in cases where consumers want to move the amount from one credit card to another that offers a lower interest rate as well as other benefits such as cash back or points.
Some credit card companies even waive balance transfer fee to woo cardholders. And they even offer promotional period of six months or so where no interest is charged on transferring the amount.
Why should you go for balance transfer?
It is advised to card holders that they take advantage of these benefits provided by banks so that they avoid high interest rates while paying off debt. Among the several benefits these credit card offers to draw new customers, some come with a zero percent interest period while others offer nominal rates for a limited duration.
Another benefit of balance transfer is that one can transfer multiple balances to one single card. For instance, if one card provides a limit of ₹3 lakh, then all the balances of small amounts can be transferred collectively to this new card.
As a result, you will have only one due date to keep track of.
Some banks even offer easy to pay EMIs to retire old debts that you have with other banks.
For instance, HSBC provides a facility to transfer the outstanding balance from your other credit cards to HSBC credit card and repay in monthly instalments (between 3 to 24 months) at a lower interest rate. The bank charges a processing fee of 1.5 percent. Also, ICICI Bank offers this facility for balance transfer of up to ₹3 lakh, for which payment can be made in instalments of 3 to 6 months. But it is imperative that you study these offers carefully.
It is important to note that while carrying out a balance transfer, you are supposed to pay a processing fee. While doing a balance transfer, you should evaluate your total savings and processing fees.
The savings, invariably, must be more than the processing fee and other expenses. Without this, it is pointless to even consider balance transfer.
Steps to follow as you carry out a credit card balance transfer:
1 At the outset, check your dues, interest and penalty charges
2 Search for a credit card that offers a lower rate of interest.
3 Make sure that credit limit is adequate in view of the existing debt
4 Apply for the new credit card
5 Request for balance transfer
Impact on credit score
Balance transfer doesn't impact your credit score directly. But it also depends on how quickly you retire your current debts. If you manage to repay all your debts on time, then your credit score can, in fact, improve.
Conversely, if you skip your monthly payments then your credit score can even deteriorate. But be mindful of the fact that this didn’t happen as a direct implication of the balance transfer.
So, it is vital to do your proper research and understand the nuances of transferring your credit balance. This will help you avoid making mistakes relating to managing your finances.