Have you overspent on your credit card and need time to settle dues? Or, do you often find it difficult to keep track of due dates of your various credit cards? Credit Card Balance Transfer is an ideal option in such situations, to consolidate all dues into one card, without having to pay high interest rates and penalties. Sounds good? Investment Yogi evaluates this facility to see if it is actually worth the buck.
What Does it Offer
Credit card balance transfer is a facility to transfer outstanding dues from one credit card, to another credit card of yours, or to a totally new card. Balance transfer could be quite a boon especially when you have a high outstanding bill, which needs more time for payment. It lets you postpone your payment by a few weeks and the transferred dues remain constant, without interest additions. You could either transfer the entire outstanding balance or just a part of the balance. Balance transfer is also useful to consolidate dues from multiple credit cards into one single card.
When should you consider a balance transfer?
Ø Unable to settle the dues within the due date
If you have overspent on your card and are unable to settle the balance because of a short term liquidity crisis, a balance transfer comes as a temporary relief. By transferring your outstanding to a new card, it gives you more time to payback.
Ø High interest rate on current card
You could consider a transfer if the interest rate quoted by your current card issuer is high. Of course such interest rate is applicable only when your payments are outstanding beyond their dates. So if you are carrying forward balance every billing cycle at a higher interest rate then go for a new one at a lower rate.
Ø Poor customer service
If you really aren’t content with your current card issuer’s service, then by opting for a balance transfer, you could pay up the outstanding with a new card and get rid of the earlier one.
Going about a Balance Transfer
To enable a transfer you would need to approach the card issuing company, to whose card you want the balance transferred. Submit an application detailing your credit card number, credit limit, expiry date, the outstanding amount and the amount of money you wish to transfer. In proof, you would have to submit photocopies of the credit card, last bill statement and an address proof. Once approved, the new card issuer would send a demand draft for the outstanding amount to your current card issuer to settle the dues. Your outstanding balance now moves over to your new card.
The amount that you transfer to the new card must not exceed 80% of its credit limit. Also, once the outstanding amount is transferred, the credit limit of the new card is reduced proportionately in tune with the amount transferred.
For example, let us say you have a new card with a credit limit of Rs. 60,000 and you transfer Rs. 30,000 to it. The Rs. 60,000 limit on the new card reduces by Rs. 30,000. The amount that could be transferred is up to a maximum of 80% of 60,000 i.e. Rs. 48,000.
Interest and Charges
The interest rate on balance transfer generally ranges from 0.5% to 2%. Many, card issuers use balance transfers as a way to lure customers, and offer low or zero interest rates. In such offers, the outstanding amount or balance transferred could be repaid at zero or low interest, within a specific time frame, depending on the card issuer. A service tax and a processing fee in the range of 2% and 5% of the total transferred amount, is levied on all balance transfers.
What to Watch Out For
The biggest advantage of a credit card transfer is that it acts as a temporary relief, getting you time to repay your dues without being charged a high interest. Here are points to keep in mind to get the maximum benefit from your balance transfer.
Ø Zero Interest
The zero interest on balance transfer offered by many issuers is only for a specific period. Be aware that once this period is over, interest rate may be considerably, high, if payments are not made. Thus, ensure you pay off all dues within the zero interest periods.
Ø Processing time
The process of balance transfer takes around 7 to 10 days. In this period, don’t miss out on the due date of the existing card. Pay up at least the minimum due amount till you receive the draft for the balance transfer.
Ø Issuer’s terms and conditions on new purchases.
New purchases on your new card will generally not fall under zero interest rate. Card issuers charge a high interest rate on all such purchases. Ensure such outstanding amounts are paid on time.
Written by Ramya Ramachandran