Things to Consider Before Transferring Your Credit Card Balance

Transferring credit card outstanding balance of one credit card to another credit card seems to be an interesting option for many of the credit card users. Especially, when banks provide offers such as zero percent interest, no processing fee, and other compelling offers, the option becomes even more enticing.

If you’ve received any such offer from the credit card providers and if you’re confused whether or not to go for it, try evaluating the pros and cons of credit card balance transfer to come to a logical decision. If the benefits you receive from the offer outweigh the drawbacks, you can certainly think about it and take it to the next level.

Hence, let’s first understand the good and bad in transferring your credit card balance to another card.

The benefits of transferring your credit card balance

When you’re transferring your credit card balance from one card to another make sure the cards are from different providers. It doesn’t make sense to opt for the same bank credit card for balance transfer. Listed below are the benefits of transferring the credit card due you owe to one bank to the credit card of another bank:

● Less interest rate: One of the reasons to opt for balance transfer option is the low rate of interest offered by the credit card providers. When you receive an offer or promotional message from a credit card company about balance transfer of your existing credit card balance, check the rate of interest. If it is less than the interest charged by your existing card provider, opting for the balance transfer option becomes beneficial for you.

● Easy payment option: While transferring your balance to another credit card, you will have two options – either to transfer the entire amount to the new card and enjoy an interest-free period of up to 60 days or to transfer on EMI or equated monthly installments.

The second option will divide your transferred balance into equal monthly instalments to be paid over the selected tenure. The tenure typically varies from 3-24 months. A certain amount of interest will be added to the principal before distributing it across the tenure. However, the interest charged on credit card EMI option is typically less than the interest charged for credit card late payments.

● Consolidation of debt: This is applicable to those having multiple credit cards. Managing multiple cards with different payment due dates and interest rates is sometimes difficult. In such a scenario, you can transfer the balance on all the cards to a single credit card. It’s always easy to manage a single credit card compared to multiple. If the consolidated debt is too high, you can go for the EMI option.

● A chance to move to a better credit card provider: If the new credit card company is coming up with better terms such as less annual fee, more interest-free period and other interesting options, you can take the advantage of balance transfer to change the credit card provider. Once the transfer is done, make sure you close the previous account, in case you don’t want to use it further.

The drawbacks of transferring credit card balance

● It doesn’t come free: Unless you receive a special offer from a credit card provider, you will be charged a processing fee, which is typically 2-3% of the outstanding.

If you opt for balance transfer on EMI option, you will be charged interest and a prepayment penalty, in case you wish to close your loan before the tenure ends. the cancellation of EMI facility does attract penalty based on the terms of the bank. Further, the annual fee for the new card can sometimes be higher than your existing card.

All these would be additional costs to bear while opting for credit card balance transfer option.

● Credit score gets a hit: A good credit score often indicates a well-balanced credit profile. Since transferring the outstanding to a new credit card is nothing but opening a new credit card account, your credit score may take a hit.

Especially, when the transferred amount consumes a major portion of your new credit card limit, it affects the credit utilisation ratio, eventually impacting your credit score.

● No reward points: When you transfer balance to a new credit card, no matter how huge the debt is, you will not get any reward points.

Quick tips to make the transfer beneficial

● Make sure the new credit card has low interest rate and other charges compared to your existing credit card.
● The new credit card should come with a higher credit limit so that your credit score doesn’t get affected.
● When opting for balance transfer on EMI, make sure you choose a lesser tenure, as the interest rate increases with the number of months.
● Pay your dues on time to avoid late payment charges and high interest rates.

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