Credit cards are growing in popularity in India and are being seen by the younger generation as debt instruments that can help them improve their creditworthiness. If you are a credit card user with a debt burden, you can opt for a credit card balance transfer to improve your creditworthiness and repay your credit card dues fast.
What is a balance transfer credit card, and how does it work?
A balance transfer is an option provided by a bank or a credit card company that helps a cardholder benefit from an economical rate of interest while repaying their credit card dues. If you feel that your current lender charges a very high interest rate, you can use this facility to transfer your outstanding dues to another lender offering a lower credit card interest rate.
How to carry out a credit card balance transfer?
You can follow these steps to transfer your credit card’s outstanding balance to another lender using the balance transfer option:
• Analyse your current outstanding dues and note the interest rate and penalty charges.
• Find another credit card offering a lower interest rate.
• Check if the credit limit is sufficient.
• Assess the balance transfer fees to decide whether transferring your balance is worth it.
• If you wish to go ahead with the balance transfer, fill the new lender’s credit card application.
• Request a balance transfer.
Points to remember while using the balance transfer option:
As illustrated in the previous section, you can very conveniently carry out a credit card balance transfer today. However, while doing so, you must keep certain points in mind:
• Your credit limit reduces when you choose the credit card balance transfer option: You must note that your credit limit will reduce if you opt for the balance transfer option. For instance, if your credit limit before the balance transfer was ₹80,000 and if you transfer a balance of ₹60,000 soon after, you will only be left with an effective credit limit of ₹20,000. This means that you can use only ₹20,000 for all other credit card transactions.
• Pay your dues within the free-interest period: You can use the nominal interest rate period by paying your dues in that period. This will help you save money as the standard credit card interest rates are applicable after the nominal interest rate period.
• The lower interest rate is not applicable on new purchases made using your card: Any new purchases you make will be subject to the standard interest rates charged by the new lender.
• Banks follow specific eligibility criteria while offering the balance transfer option: Banks have put several checks in place to keep credit card holders from switching lenders very frequently. Several banks and credit card companies require a credit card holder to be a particular company’s customer for at least a year before availing the balance transfer option.
If you have opted for the balance transfer facility, you must refrain from using your credit card to make any purchases until all the balance transfer payments are completed. You can use an online credit card EMI calculator to plan for the repayment of your credit card dues before opting for one.