If you’re trapped in a credit card debt web then balance transfer is a good option for you to manage your debts well. For those who are unaware of credit card balance transfer, it is a facility offered by several banks which allows credit card users to transfer the outstanding balance from one credit card account to the other credit card account held in another financial institution.
Balance transfer is a great way to clear off your debts. There’s a wide range of credit cards available that offers 0% interest over several years. These cards help you to save huge amount of money if you pay the whole sum during the interest free period only. The credit card balance transfer process is prompt and can be completed in a short span of time.
Benefits of Credit Card Balance Transfer
Lower credit card interest rate– If you’re currently paying a high interest rate on your present credit card then switching to the card with a lower interest rate will save your money over a long haul. Since you’ll be having lower interest rates, you can make the most of it as your income will go towards reducing the card balance instead of paying the high APR. You may get a card with 0% APR as an introductory offer also. You must pay off your balance completely by the time the promotional period ends. Opting for credit card balance transfer is a good idea to save on total interest pay-out.
Convenience– Transferring multiple cards’ balance into one card can make your life a lot easier. Tracking one credit card payment every month makes it less likely to miss any payment. It also eliminates the hassle of making payments to the multiple credit card companies. You may get the lower interest rates as well on the new credit card which will help you to save better for future needs.
Credit card with better terms– You may get a balance transfer credit card with better terms and conditions. You may find a card with low fees and longer grace period. Closing your old account and transferring the old balance to a new card using credit card balance transfer will save you from paying sky-high amount.
Things to know before switching to a new credit card
Even though credit card balance transfer is a better option to pay off credit card debts, it is advisable to consider certain things before moving ahead with the decision.
Compare the balance transfer credit cards– The initial and the most important thing to do is to compare the different cards and find the most suitable one for you. If you want to go for the best deal on credit card balance transfer, look for the following benefits in your new card:
- There are cards which allow you to pay your outstanding balance with 0% interest rate or with a very low APR as compared to others. Look for the cards with good introductory rates.
- Keep in view the time period of the introductory rate. Usually it is 6 months but there are cards on which the introductory rate lasts for a year or more.
- Check if the introductory rate is applied to new purchases as well along with the transferred amount.
Read the fine print– Credit card issuers can make money from you in numerous ways. The interest rate isn’t the only thing you need to look at. You may also be charged with a high annual fee. You should look for card with reasonable fees. Credit card companies also charge penalties for paying your bill late. In addition, you may have to make a minimum monthly payment on the card. The other important thing to consider is the credit card balance transfer processing fee which is usually a percentage of the amount being transferred. A high balance transfer fee can significantly reduce the effectiveness of balance transfer. Before applying for a card read the terms and condition thoroughly as you don’t want to be paying exorbitant rates for your new credit card.
Transferring and repayment aren’t same – While using a balance transfer card people are in an essence that they have completely paid off their debts. But in reality you’re just transferring your previous balance to the new card to save money from a hefty interest to be paid. Balance transfer cards allow you to pay that amount at lower rates of interest. It helps you to save an overall interest cost in a long run. It is also advisable to make a repayment plan so that you do not miss out on any payment. If you’re not able to repay the full amount then be ready to switch to another card in the end of deal.
Careful with the new purchases– No doubt credit card balance transfer is the best way to tackle the multiple credit card debts but it is beneficial only when you control your new purchases. Many of the cards offer rewards with the new purchases which generally entice the cardholder to purchase more. And the new purchases come with interest charges that will offset your savings from balance transfer. Usually, new cards offer interest free period only on the previous transferred amount not on the new spending. Some credit cards specify that the transferred amount is qualified for the lower interest rates whereas the new purchases will be levied with the usual higher APR. So you must be careful while spending
Look at your credit rating– Most banks take your credit rating into consideration before giving you the privilege of balance transfer. To become the most ideal candidate for a balance transfer you need to have a good credit score of 750 or above. With a credit rating below 750, it’s harder to qualify for a good deal. You may get something less but the chances are you still can crack a fair deal.
Here are some of the ways balance transfer can affect your credit rating
- Repayment history– Failing to repay the minimum amount due before the promotional period ends will increase the level of debt. It will definitely impact your credit score.
- Status of application– Credit card issuers maintains a keen view in your credit card application before approving it. Rejection of your credit card application can have a negative effect on your overall credit score since new application is the 10% of your credit score. So it’s important to check the application properly.
- Multiple cards and transfers– Applying for multiple credit card applications in a short span of time can also hurt your credit score. Credit card issuers may come up with a view that the cardholder is repeatedly issuing new cards to get sign up bonus or it may also indicate that you won’t be able to afford the monthly payments of all the new credit cards. If you fail to repay your debt by the end of the promotional period and have to move the remaining amount to another balance transfer credit card, this will also look bad on your credit file.
How a credit card balance transfer works?
We have considered SBI balance transfer process to explain How to apply for the balance transfer credit card. Although, the process differs from bank to bank
Find the online application form- After selecting a suitable card, look for the application on the bank’s website. If you’re comparing the card on the credit card comparison site, you will find apply now button there. By clicking on apply now you’ll be directed to that card’s bank official site.
Complete the application form- Some basic information is required to be fulfilled as the credit card company wants to make sure that no one else is taking a card on your name and this information also gives them the details required to check your credit score. You need to provide following information in the application form:
- Biographical details: Such as your name, date of birth, your address and social security number. Some of the contact details such as the e-mail and phone number are also required.
- Financial details: You also have to fill some financial information like your financial income, where your income comes from etc.
Give the old card information: Application form will have a separate column to fill the details of the old card so that the new credit card company has the necessary information to transfer balance.
Application submission: After completing the entire application form, check all the information you provided to avoid the unnecessary issue regarding it later. Make sure the given details are 100% correct and there is no chance of application rejection then hit the submit button.
Wait for approval : While filling the application the only question that revolves around your mind is how soon will I get an approval for the credit card? If you’ve given the correct information, you can typically get an instant approval in 5 minutes or less. Sometimes you don’t get an instant approval that could also mean the denial of the application, but that’s not the case always. Sometimes the application needs the further review so it may take some time and mailed applications also takes a longer time. You may not get the credit limit you anticipated. You are in no obligation to accept the card just because you filled an application form and a piece of plastic has your name on it. You can simply deny the card for any reason or no reason at all. However, applying to too many cards one after another can affect your credit rating.
Closure of old accounts– Once you transfer your money from the old credit card to the new credit card, don’t forget to contact your previous credit card company to close your account to avoid any unwanted charges. You can keep your old accounts open to make small purchases and paying it completely every month to improve your credit ratings.
The Final Word
It is always advisable to proceed with caution while accepting a balance transfer offer as there are few drawbacks to transfer your balance to a new credit card. But if the new card helps to simplify your finances and help you to pay off debt faster than the balance transfer option is worth it.