Credit Card Balance Transfer: Benefits and Risks of Credit Card Balance Transfer, When to Use it..

Credit Card Balance Transfer: Credit cards have made all our work easier, but if it is not used properly, they can trap us in a big debt trap. The fear of increasing bills every month, huge interest, and late fees makes many people lose sleep at night. If you are also burdened with credit card bills, then you must have heard about Credit Card Balance Transfer. This is an option that can be helpful for you in this situation. But for this, you should have more than one credit card. Let us tell you what is credit card balance transfer, when is it a profitable deal for you and when is it a loss.

What is a Credit Card Balance Transfer?

Credit card balance transfer simply means transferring the outstanding bill (debt) of one of your credit cards to the credit card of another bank. Usually, this is done on a card that is offering a promotional offer of low interest rate or 'zero interest'.

Understand it like this.

Suppose you have a bill of Rs 50,000 on your card 'A', on which 40% annual interest is being charged. You take a new card 'B', which gives you the facility of balance transfer at 0% interest for 6 months. You transfer the loan of Rs 50,000 from card 'A' to card 'B'. Now your card 'A' bill becomes 0 and you get a chance to repay the bill of card 'B' within 6 months without any interest.

Benefits of balance transfer: Why is it a smart move?

This is its biggest advantage. While a normal credit card charges 35-45% annual interest, a balance transfer gives you a chance to repay the loan at 0% or a very low interest rate for a few months. This can save you thousands of rupees.

Extra time to repay the loan

You get a new 'Grace Period'. During this time, you can arrange money by improving your financial condition without the pressure of interest.

Protecting CIBIL Score

When you pay the bill of the old card, you avoid becoming a defaulter. Timely payment prevents your CIBIL Score from falling.

Debt Consolidation

If you have many credit cards, then you can manage all their bills by transferring them to a single card. This way you have to focus on only one EMI.

credit card balance transfer

Disadvantages of balance transfer

Processing Fee & GST

This facility is not free. Banks charge a processing fee of 1% to 5% on the amount to be transferred and GST on it. This fee can be quite high if a large amount is transferred.

The trap of 'introductory offer'
The offer of 0% interest is always for a limited period (eg 3-6 months). If you are unable to repay the entire amount in this period, then a very high interest (Standard Interest Rate) starts being charged on the remaining amount, which can be even more than the previous card.

Negative effect on credit score
Frequently transferring balance or applying for a new credit card can have a bad effect on your CIBIL score, because it is seen as your increasing hunger for credit.

Does not eliminate debt, just transfers it
It is important to understand that balance transfer does not eliminate your debt, it just moves it from one place to another. If you do not improve your spending habits, you will again get trapped in the debt trap.

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.