Manage Money

Balance Transfer Credit Card

If you have a huge loan or a heavy debt on a credit card, which you can't afford to pay off, do not think that you have met the end of the line. Even if you have no other means of backup in such a situation, the balance transfer facility could be an option for you.

As with loans, balance transfer is a viable alternative for credit cards as well. The service is offered by many card-issuing companies and banks, and you can avail it with relative ease.

What Is Balance Transfer?

BT is a facility in which you get a new credit card with a low APR, and then transfer your high credit balance to it from your old cards. Basically, you use a new card to pay off your debt on other cards, but you get the provision of paying a lower interest rate. You might even find a few balance transfer cards which offer 0% introductory APR for a limited period.

Balance Transfer Process

Why Opt for a Balance Transfer?

A few of the benefits of balance transfer credit cards are given below:

  • Pay Less Interest: The very reason to even consider a balance transfer in the first place is that you get to pay a lower rate of interest than that at your previous credit card company. This can be either for your general financial benefit or to repay debt more easily

  • Streamline Your Finances: You can transfer your outstanding balance from multiple credit cards to a balance transfer card, thus streamlining all your payments into a single payment, which is much easier to manage. It is also unlikely that you will miss payments due to different billing cycles.

However, when would it be ideal to consider a balance transfer? How can you get a balance transfer done? What factors are to be considered before going for a balance transfer? Let's get a little deeper into it.

How Do Balance Transfer Credit Cards Work?

We, at mymoneykarma, strive to make your finances easier for you to understand. Mentioned below is a detailed step-by-step description of how the balance transfer facility works.

  1. Search for the best and most suitable balance transfer facility. (Heads up! The next section deals with this in detail)

  2. Apply for a balance transfer card - you could do so online, through your phone, or by visiting the card issuing company directly.

  3. Provide the details required - such as the account number and the amount to be transferred.

  4. Wait for the issuer to approve your request. The lender or card issuer will check your credit history and credit score before making a decision. There isn't any guarantee that your application will be approved; even if it does, the full amount might not be approved for transfer.

  5. Understand the terms and conditions. A card issuer might not allow you to transfer debt between the products of their own company. However, you can move other types of debt (like a loan or a mortgage) to a balance transfer credit card.

  6. Wait for three weeks and keep making payments on your old accounts till you get alerted by the new card issuer that the transfer procedure has been completed.

  7. Once the balance transfer is successful, all your old cards will be wiped clean, and your entire debt will be transferred to your new card.

  8. Try to pay off most of your balance within the introductory period when the APR is low. That's how you must utilize a balance transfer card to your advantage - save money on interest and pay off debt faster.

  9. What about the old cards? Well, try not to close them, as doing so will make your credit score drop. Keeping your old accounts active is healthy for your credit history. However, if there is a hefty annual fee that you can't afford, you better cancel it rather than inviting more debt.

Making the Right Choice

Research thoroughly before selecting a card. Your principal objective is to reduce debt, so put all your other preferences aside and focus on finding out the card that helps you save the most. Here are a few things that you must consider during selection:

Introductory Offer

The whole idea behind a balance transfer card is to give you enough time to pay down your debt. Choose the card that gives you an introductory offer of 0% APR for a limited period. Most balance transfer cards offer this scheme. Then how do you choose? Select the card that provides this offer for the longest time so that you can settle the debt by then and save some money on interest.

The Balance Transfer Fee

Some balance transfer cards might charge you a transfer fee of around 3-5% of the transferred amount. This means that each time you transfer a loan to your new card, you end up paying a fee. You could avoid this by looking for a card that does not impose a transfer fee. Otherwise, select the card that charges the minimum fee for transfers.

For example, say you already have an APR of 12%. The balance transfer card offers an APR of 10%. Over and above that, you have to pay a balance transfer fee of 4%. That doesn't look profitable at all. You won't save anything; on the contrary, you will pay more than before!

The Annual Fee

You should look for a balance transfer card which has no annual fee. However, you will qualify for such cards only if you have a good or excellent credit score. Also make sure that you will be able to pay off the entire balance that you are transferring during the 0% APR period.

To Sum Up

A balance transfer card is a useful tool for reducing debt. Go for it only when you cannot afford to pay your existing debt. However, you need to be very punctual and regular with your payments after you have transferred your balance. Check your credit report regularly to make sure you are on track.

Try your best to settle the debt within the introductory 0% APR offer. You must not misuse this facility. Do not move debt from one card to another - that vicious cycle of debt may engulf you and ruin your financial health forever. Pay off your debt. It might call for some sacrifices; just do it!


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