Is Credit Card Balance Transfer a Good Option For You?

The easy availability of credit cards and the several benefits offered by them are the two main reasons why credit cards have gained immense popularity in the country. While the smart use of credit cards is beneficial in emergencies and big purchases, the availability of a plethora of credit cards has resulted in cardholders holding more cards than required and using them recklessly. This indisciplined manner of using credit cards makes cardholders fall into a debt trap. The situation can become impossible to come out of if you do not take necessary action before things worsen. A Credit Card Balance Transfer is one way to manage your credit card expenses when you have overused your card or want to take advantage of the credit card offers. This article elucidates the pros and cons of Credit Card Balance Transfer so that you can make an informed decision about whether the option is suitable for you.

What is Credit Card Balance Transfer?

When you are caught up in a huge credit card debt that needs to be paid in the current billing cycle, a Credit Card Balance Transfer could be a beneficial option to pay the pending dues to another credit card provider with an extended period or a lower rate of interest or both. So, apart from the primary credit card, if you have an additional credit card that offers the balance transfer facility, it could be a good option to get more days in hand to repay the credit card dues.

The Balance Transfer facility can provide you with an extra 45 to 90 days to clear your transferred dues, depending upon the terms and conditions of the credit card issuer and your billing cycle. This allows you some more time to manage your finances and clear your dues. However, if you are unable to make the repayment even during this interest-free period, the credit card issuer will charge you a regular Annualised Percentage Rate (APR).

How does Credit Card Balance Transfer work?

Balance Transfer is basically transferring your debt from one lender to another. Similarly, Credit Card Balance Transfer is transferring your credit card debt from one credit card provider to another. For example, suppose you are required to pay a credit card bill of Rs 1,00,000 but you are unable to pay the full amount by the due date. Now, if you have another credit card that offers a balance transfer facility, you can transfer your dues to this card. The credit card on which the balance is transferred will provide you with an interest-free period or a low-interest period, within which you are required to repay your dues. However, if you are unable to pay the dues within this period, then the credit card provider will charge you the pre-specified interest and late payment charges. It is important to know that while transferring the balance, you will have to pay the balance transfer fee to the credit card provider to whom you transferred the balance. Hence, before transferring the balance, it makes sense to calculate your total savings and make sure your savings are more than your balance transfer expenses.

What are the pros of Credit Card Balance Transfer?

1. Interest-free Period:

The Credit Card Balance Transfer provides a 0% APR period of 45 to 90 days. You can carry your debt during this period without paying interest. However, some Balance Transfer Credit Cards may charge a nominal interest or ask for a nominal down payment.

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2. Easy Availability:

One can apply for the Balance Transfer Credit Card when needed, and they will likely receive it on time. This is because the approval process for balance transfer cards is quick and easy if you meet the eligibility criteria. However, the processing time may vary depending on your profile and the terms and conditions of the issuer.

3. Debt Consolidation:

The Balance Transfer allows you to transfer dues of multiple credit cards on a single credit card. Debt consolidation helps you manage the repayment of multiple cards efficiently. So, if you have dues on more than two credit cards, you can consolidate them and pay a single debt through a Balance Transfer Credit Card.

4. Improved Credit Score:

In the absence of a Balance Transfer Credit Card, your dues can get a bounce, and it can damage your credit score. However, since the Balance Transfer Credit Card allows you to transfer the debt you cannot afford to pay and offers you some extra time to manage the repayment, your credit card bill does not bounce and ultimately does not damage your credit score.

What are the cons of Credit Card Balance Transfer?

1. Processing Fee:

The Balance Transfer Credit Card generally charges a processing fee to transfer credit card dues. This fee could range from 1% to 5%, depending on the terms and conditions of the credit card provider.

2. High APR:

While most Balance Transfer Credit Cards offer interest-free credit periods, some charge a small percentage of pre-specified APR. Once the no or low APR period is over, the credit card providers charge high APR, which can make your dues challenging to repay.

3. Might Not Provide Sufficient Credit Limit:

Credit card issuers provide credit limits after considering several factors. Hence, the credit limit varies from credit card to credit card. It might be possible that your Balance Transfer Credit Card provides a lower limit than other cards. In such a case, if your dues are high, you might not be able to transfer the entire dues and can only transfer up to the unutilised credit limit of the card.

4. Possibility of Opting for More Credit:

Since Credit Card Balance Transfer allows you to transfer your dues to another card, your primary credit card reopens your available credit. If you lack financial discipline and cannot control your urge to spend on credit, the available credit limit on your primary credit card can provoke you to splurge more. This pattern can put you in a debt trap, which could be challenging to come out of.

5. More Credit Enquiries:

While planning to get a new Balance Transfer Credit Card, if you apply for it with different credit card issuers, then the multiple credit enquiries in the short term can negatively impact your credit score.

To conclude:

While Credit Card Balance Transfer is a great facility for a financial emergency, using it frequently is not good for your financial health. If you have to take advantage of it, compare different credit card providers in terms of 0% APR period, processing fee, APR post 0% APR period, credit limit offered, customer service, and customer reviews. Before opting for a Balance Transfer Credit Card, make sure you read all the terms and conditions thoroughly so that you make an informed decision and there are no unpleasant surprises in the future.

Warm Regards,
Ketki Jadhav
Content Writer