Here is how balance transfer can reduce your credit card woes

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Published: May 2, 2018 12:21:55 AM

A credit card holder can avoid paying high interest on outstanding credit card balance by using the balance transfer facility of another card of a different bank.

credit card, EMI, bank, PAN, credit limit, balance transferAny fresh purchases on new card will attract standard interest rates if only the minimum amount is paid and the balance is rolled over.

If you are unable to pay the full amount due on your credit card by the payment due date, you have the option of balance transfer to another card, provided you have a good credit history. The bank will do the balance transfer either by issuing a demand draft in favour of the bank where you have the credit card or an electronic transfer. Credit card balance transfer is quick and the new bank usually takes two to three days to transfer the money.

Most banks require a few documents such as photocopy of credit card, card bill statements and bank statement for six months, PAN and address proof. Typically, banks offer balance transfer for a minimum amount of Rs 5,000 to a maximum of 75% of one’s available credit limit. Banks do not allow balance transfer for another card of the same bank.

Advantages of balance transfer

One of the most important benefits of balance transfer is that the cardholder will get an additional three to four months during which one can pay the outstanding balance without paying any interest. The interest charged by the new bank on the balance transferred would be much lower than that charged on the current credit card. Before balance transfer, ensure that the credit card you are planning to transfer balance to has a credit limit over the outstanding amount that you want to transfer.

For balance transfer, most banks even allow the customer to transfer the outstanding amounts that have been converted to equated monthly installments (EMI) or even convert the outstanding into low interest EMI. Banks will charge a processing fee for the balance transfer which could be 1-2% of the outstanding amount.

For instance, suppose you made total purchases of Rs 50,000 from your credit card in a particular month. Due to paucity of funds, on the bill date you pay only the minimum amount, which is 5% of the total outstanding amount or Rs 2,500. The remaining Rs 47,500 is rolled over for next month which will attract interest rate of, say, 3.1% a month. The total outstanding next month would be Rs 47,500 plus Rs 1,473—a total of Rs 48,973 provided you have not made any new purchases in the current bill cycle. And if you do not pay this amount before the due date, then the interest on the outstanding amount would keep rising.

If you go for balance transfer to another credit card, it will give you a two-month interest-free period and charge 1- 2% interest for six months. So, balance transfer is an ideal option to save on the interest costs which will rise every month if the outstanding amount is rolled over on your primary credit card.

Look at interest rate charged

The interest rate on rolling over the credit by paying the minimum amount can range 35-42% per year. In case of default where the cardholder does not even pay the minimum amount, the interest rate can go up further. While doing balance transfer, look at the cards which charge lower interest rates. For instance, on balance transfer SBI Cards charges 1.7% interest per month for tenure of six months. Similarly, Standard Chartered Bank and Punjab National Bank charge 0.99% interest for six-month tenure.

Cardholders should note that the low interest rate is charged for around six months at the most. After that the bank will start charging the standard interest rates. So, it is important to pay off the outstanding amount due to the new credit card issuer within the stipulated time to avoid higher interest rates.

Don’t make balance transfer a habit

Though balance transfer may be helpful, it is not a good idea to do it on a regular basis. In fact, banks may reject repeated requests for balance transfers even if the amount due to the new card issuing bank is cleared in due time. Also, any fresh purchases on new card will attract standard interest rates if only the minimum amount is paid and the balance is rolled over.

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