Ideally, nobody would like to revolve credit on their credit card. We would all pay off the bills every month and never need to stress over managing interest charges or swelling minimum payments on our cards.
However overspending happens, sometimes not entirely by your own mistake, but is due to some short-term adverse circumstances encountered by you.
In case you’re confronting a heap of credit card debt, doing a balance transfer may be a decent approach to make it vanish quicker. However, before you do that you got to be certain that doing the balance transfer is the best thing in your situation. The last thing that we at mymoneykarma.com want is for you to take a decision that is not optimal for you. Read below to learn more about balance transfer and to figure out if it is the right thing for you
Transfer a balance, save huge on interest
The thought behind a balance transfer is basic: You open another charge card with a low interest rate and move the outstanding from your old, high-interest card to the new one. Basically, this implies the debt on your old card has been paid by the new card. After you complete the transfer to the new card, you can begin paying it down; this is much simpler to do when your interest payments have been reduced a lot.For Example how much cash you can spare by transferring a balance, assuming we accept you had a credit card debt mounting to Rs 10,000 and that the card is charging you 15.99% interest. With this level of debt, your month to month least installment would be about Rs 232 (Varies s on upon how your credit card company computes your base installment, we’ll assume Rs 232 for this example). Regardless of the possibility that you were making double the minimum payment, it would take you 26 months to pay off the debt and you’d end up paying Rs 1,867 in interest. However if you come across a credit card that offers 0% interest for 15 months and you kept paying double the minimum, you’d pay off your card in 22 months with just Rs 162 in complete interest installments. That is a saving of Rs 1,705!
Let’s not forget the fee
At this point you’re most likely feeling that transferring a balance sounds like an extraordinary thought, and as a rule it is. There’s another thing to figure your calculations — the balance transfer fees.
A balance transfer fee is a charge forced by the bank whose card you’re moving your debt to. This is not a flat fee; it relies on upon how much cash you’re transferring to the new card. It’s regular to see an transfer fee communicated as Rs 10 or 3% of the balance transferred, whichever is higher.” Also, transfer fees are paid in advance, when you move your debt onto the new card.
A 3% charge won’t not seem like much, but rather in case you’re transferring a huge balance, it can truly cut into the amount you’re sparing by doing the change to a lower-rate card. In the case above, if you are transferring Rs 10,000 balance onto a 0% card that charges a 3% balance transfer fee, you’re not by any means saving Rs 1,700. You’re saving Rs 1,400, in light of the fact that you will have needed to pay a fee of Rs 300 to transfer the balance. This is still a considerable saving of money, yet it’s not as great as it at first appeared.
In case you’re looking for exchanging a balance, search for a card with a Rs 0 yearly charge, a long interest free period and no balance transfer fee.
Key to choosing whether you should balance transfer or notThe key formula you should use to guide you in your decision is : if fee on the new credit card for balance transfer is less than the interest that you would have paid on your current card you should transfer to the new card. To help you we have made this calculator for you on mymoneykarma.com use that to figure out if you should opt for balance transfer.Chosen to do an balance transfer? Here are a few tipsNow that you figured that a balance transfer is the correct approach to manage your debt, here are a few tips from mymoneykarma.com :
- Search for a card that offers a long 0% APR (annual percentage rate) period and doesn’t charge an balance transfer fee
- In the event that you can’t fit the bill for one that meets both these criteria, think carefully about paying a balance transfer fee versus paying interest. Picking the one thats best well for you relies on upon how big your balance is and to what extent you think it will take to pay off, given your assets.
- Be as disciplined as you could be when paying off your debt before the interest free period is up.
- Try not to wipe out your old card — this could hurt your credit.
- Make it a need to pay on time each month. In the event that you miss an installment, your 0% arrangement will probably be scratched off and you’ll need to begin paying interest immediately.
- Keep away from the cardinal transfer crime: moving your debt to another card, then charging the old card move down. In the event that you do this, you’ll end up with more debt.