Credit Card Balance Transfer - Useful Benefits and How it Works?

• A balance transfer allows you to move a high-interest credit card debt to a new card with a lower or 0% introductory interest rate. 

• The primary goal of this transfer is to save money on interest payments, enabling you to pay off the principal amount of your debt quickly. 

• It simplifies debt management by consolidating multiple balances into a single, more manageable monthly payment. 

If you  are struggling with credit card debt, you can choose a credit card balance transfer. By transferring the outstanding balance from a high-interest credit card to one with a lower interest rate, you can significantly reduce your interest payments. 

Moving credit card balance allows you to shift your existing dues to another card. This will allow you to enjoy a lower monthly interest that typically starts from 0.99%, and other flexible EMI options too.

Before using credit card amount transfer as your primary debt management strategy, carefully evaluate its details to successfully clear your debt.

As the name suggests, a credit card balance transfer moves unpaid dues from one or more cards to a new one. Banks approve balance transfers on credit cards for this specific purpose.

When you apply for this, you open a new credit card account with limited time promotional rates and a grace period. The combination of these offers allow you to repay the principal amount more quickly without attracting more interest. 

For instance, imagine you have ₹60,000 as balance on a credit card and you are paying 20% interest per annum. If you switch to a balance transfer card that offers 0% interest for the first 12 months, you could save up to ₹12,000 in interest during that period.

Now that you have the idea of what a balance transfer is, let’s understand how the process works:

1. Assess Your Debt: Start by reviewing your total outstanding amount. Make sure the new card's credit limit can cover the balance you are planning to transfer.

2. Compare Balance Transfer Cards: Research different cards offering balance transfer facilities. Look for one with favourable interest rates, low fees, and a sufficient credit limit.

3. Apply for the New Card: Once you find a suitable card, apply for it by submitting accurate financial and personal details, including your current credit card balances.

4. Request the Transfer: After the approval of the new card, you can initiate the balance transfer. You can usually do this online or by contacting the card issuer.

5. Repay the Balance: Pay off all your dues without additional charges during the promotional period to maximise savings.

Consider these advantages before proceeding with the balance transfer process:

• Lower Interest Rate: The primary motive of moving credit card balance to another card is to reduce the interest rate for repayments. A new card can also come with a grace period during which you don’t have to pay any interest. 

• Easier Payment Management: Combining multiple debts into one simplifies tracking and managing payments. Many lenders provide apps with debt management tools to give you a clear idea of the due amount and dates. 

• Faster Debt Clearance: With reduced interest, a larger portion of your payment goes toward the principal, which will help you pay off debt sooner. 

• Better Credit Health: Lowering your debt will decrease your credit utilisation ratio, and this can improve your credit score. Maintaining a healthy credit score will make it easier to get loans and cards with better terms in the future. 

Transferring the balance comes with many benefits, but it may not suit everyone: 

• Consider it if:
  • You have a good credit score and qualify for a lower interest rate
  • You are planning to repay the full amount within the grace period
  • The savings on the interest are more than the transfer fees
  • You can avoid using your old card for new purchases
• Avoid it if:
  • You don’t get a much lower interest rate
  • You need more time than the promotional period allows
  • You may add more debt to your old card.

Make the most of your balance transfer by following these key tips:

• Choose the Right Card -Compare different credit cards and pick one with low interest, a long promotional period, and minimal transfer fees. Make sure to check the eligibility criteria before applying to avoid hard enquiries. 

• Plan Your Repayment - Set a monthly repayment amount and aim to clear the balance before the no-interest period ends. If the lender provides money management features in their app, then utilise them. 

• Avoid New Debt: Do not use your cards for new purchases. Instead, focus only on clearing the transferred balance first.

• Track Your Progress: Review statements regularly and adjust your plan if needed to stay on track. This will also help you to stop overspending. 

Balance transfer credit cards offer an effective way to manage debt by reducing the interest charges. Use them strategically to clear dues faster and strengthen your finances. Evaluate both advantages and disadvantages before proceeding, and make sure it will suit your needs.

Keep in mind, a balance transfer is a financial tool, not a permanent fix. Practice mindful spending and stick to your budget to stay debt-free.

Can I transfer the full outstanding balance of my credit card? 

Most issuers allow balance transfers only from other banks’ credit cards. You usually can't transfer balances between cards from the same issuer. Also, the transfer amount cannot exceed the credit limit on your new card.

How long does the CC balance transfer process take in India? 

The issuer usually completes a balance transfer within a few days or can take uptp two weeks. Keep making payments on your old card until the transfer goes through.

Will making a balance transfer affect my credit score negatively? 

Balance transfers don’t directly impact your credit score. However, opening a new card can affect it both positively and negatively.

Can I transfer outstanding balances from multiple cards at once? 

Yes, if you have balances on multiple high-interest cards, use a balance transfer to combine them. This will help you to make one manageable payment at a lower interest rate.

Is there a limit to the credit card amount transfer I can do? 

Lenders usually restrict the credit card amount transfer to the available limit on the new card or a fixed percentage of it.