Credit card balance transfer
With easy credit on the Indian financial market, you can live the life you’ve always wanted.
Some loans can help you pay for a house, a vacation, or a new, expensive car for your parents. Also, credit cards let you buy things you couldn’t afford otherwise.
But what most people need to know about credit is that it is easier to pay back the amount they owe. With a balance transfer solution, you can now lower your total debt. It may come as a surprise.
Don’t worry if this is something you have never heard of. We tried to tell you about it and how it could help you save money in this article.
What is a balance transfer?
The best way to explain a balance transfer is to say that you move some or all of your credit balance to another account.
- You can move the principal loan amount, like for a house or school, to a different bank or institution.
- You can also move the balance from your old credit card to a new one with a lower interest rate.
Almost all banks today offer this service to their customers. When you ask for a balance transfer, your new creditor pays off your debt to your old creditor.
Why should you consider a balance transfer?
Your income changes over time, just like the stock market.
The interest rate may be higher when you get a creditor loan. The current interest rates are better.
In other situations, your income could have increased, which would have let you pay more each month. When this happens, it makes sense to look at the market and switch to a competitor with a better interest rate.
Credit card balances can also be moved this way. You may have exceeded your credit limit and now owe much money. In such cases, a balance transfer can come to your rescue.
What are the benefits of a balance transfer?
With all the paperwork and time it takes to get a loan, you might wonder if it’s worth your time to apply for a new one. But once you know what a balance transfer can do for you, you may be more than willing to do it. Let’s take a close look at it.
Its main perk is the introductory 0% APR on a 0% balance transfer credit card. During this 0% interest period, you won’t have to pay interest on your debt for a certain amount of time. So, your monthly payment goes toward paying down the credit card balance.
Take the case of a person who owes $10,000 in credit card debt at an 18% interest rate.
Different cards have different minimum payments, but a typical minimum monthly payment is about 2% of the total balance. In our case, the first month’s minimum payment would be about $200. Only interest payments are being made with that $150.
If you keep making the minimum payment every month, your interest payments will grow quickly. Paying off the $10,000 debt would take 610 months and an extra $28,396.72 in interest payments. You can use the credit card payoff calculator on FINTITUDE Advisor to see different ways to pay off your debt.
Things look very different if you move that balance to a card with a 0% introductory APR. For example, suppose you had a balance transfer card with 0% interest for 20 months. In that case, you could pay off this debt without paying any interest by making $500 each month.
The second benefit of a balance transfer card is that it lets you combine your other debts into one payment. If a person owes money on more than one card, transferring the balances to a single balance transfer credit card will eliminate the hassle of making more than one monthly payment.
Lower Credit Utilization
In the short term, transferring your balance can hurt your credit score, but it could help your score in the long run.
Over time, a balance transfer will help you lower the amount of your credit that you are using. The utilization rate compares the balances you owe on revolving credit, such as credit cards, to the amount of available credit. A lower credit use rate indicates good credit use by credit scores. A lower utilization rate also shows that a consumer has credit available in case of an emergency.
With a balance transfer, the amount of credit on the new balance transfer card is added to the credit you already have. Your utilization rate will decrease as you make payments unless you take on more debt. It is not a reason to transfer a balance, but it could be a long-term benefit of using a credit card with a balance transfer feature.
What should you know about credit card balance transfers?
Here’s what you need to know about the process to make a smart choice.
Understand your credit limit
You might have to give up your credit limit if you move the balance to a new credit card. The same amount is taken off of your credit limit.
Let’s say you have a 1,000,000 credit limit, and you transfer a 50,000 balance. In this case, the remaining 50,000 will be your new limit.
It also means that you can only transfer your balance once the bank is ready to give you a credit limit of at least as much as your current balance.
Explore the option of personal loans
You should only transfer your balance if you are sure you will be able to pay off the amount you owe in the next 3–4 months. If not, you could think about getting a personal loan. It will help you turn a big chunk of money into smaller, easier-to-handle monthly payments.
Evaluate if the new interest rate is really low
When you go to a bank with your needs, you may be surprised to learn that the bank manager is willing to give you a credit card with a lower interest rate. Don’t get too excited, however.
Only the amount you transfer will have a lower interest rate. Any new credit you get from the new creditor will have the standard interest rate.
Avoid card hopping
Because balance transfer has so many benefits, there is a high chance of fraud. People will only move from one credit card to the next if they are kept track of it. Banks use a system that keeps track of all credit card inquiries to stop people from switching from one card to another.
When you apply for a new credit card at a bank, a soft inquiry is made into your credit report. Before giving you credit, all banks and financial institutions look at your credit history. If they get too many applications, they may turn down yours.
To avoid this, you should only apply for credit cards occasionally. Also, you can only ask for a balance transfer if you’ve been with your current lender for at least a year.
How to decide if a balance transfer is a good option for you?
If your credit score is pretty good, you can expect a bank to let you transfer your balance. If not, it could hurt your credit score. So, before sending a request, you should check your credit score online.
Check to see if you have much debt on your current credit card and if moving it to a new account will lower your liability.
You know you will get a big bonus in the next few months. It could come from a payment from a client or a bonus at work. In this case, transferring your balance to a new account can save you money.
You have found a loan offer that is too good to turn down. However, the bank will still charge you a small fee to handle your balance transfer. It could be anywhere from 1% to 3%. Because of this, you should do the math to see if it is worth it.
How long does a balance transfer take to process?
If you want to move your balance to a credit card you already have, you must fill out and submit an online form. Most of the time, this takes about a week.
Getting a new card or loan can take up to a month. Most of the time, the banks send you the money through a demand draught, a check, or an online transaction.
a balance transfer can help you out when you need it. But you need to consider your options and go through the process if you think it will lower your liabilities.