CREDIT CARD OUTSTANDING: Balance transfer can reduce interest outgo
With rising credit card defaults, a balance transfer can be helpful for those cardholders who cannot pay their credit card dues in full. The interest rate on balance transfer is lower than the regular interest rate on credit cards and some issuers also provide introductory offers such as zero interest for a limited period, which can be a great short-term solution to pay off your credit card debt quickly.
However, before opting for a balance transfer, understand the interest rates and change in terms and conditions once the introductory period is over. The charges for balance transfer vary from bank to bank, which can range from 0% to 2% per month, depending on the card issuer.
Many card issuers charge a processing fee of 1-3% of the transferred amount. Some banks may also charge a flat fee for balance transfers. In addition to the interest, a one-time balance transfer processing fee will also be applicable which can range from 100 to300 or even higher, depending on the card provider.
It is important to use the balance transfer facility responsibly as frequent transfers and postponing interest payments may adversely impact your credit score.
Adhil Shetty, CEO, Bankbazaar.com, says, before shifting your debts, check the interest rates, balance transfer fee, duration of the payment and identify if there are any hidden charges. You may opt for cards that offer zero charges on a certain number of transfers. “Also, it may carry a charge and you may choose a card with a low-interest rate to avoid incurring additional charges,” he says.
Paying only the minimum due leads to hefty finance charges on the remaining amount, along with making new purchases ineligible for the interest-free period. Rohit Chhibbar, head, Credit Cards
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