A credit card balance transfer involves moving the outstanding balance from one credit card to another, usually to take advantage of lower interest rates. Credit card balance transfers can help in managing high-interest debt more effectively by consolidating it onto a single card with a lower interest rate, potentially saving money on interest payments.

However, it’s crucial to consider the transfer fees, if any, and your ability to pay off the debt within the specified period to maximise benefits. Balance transfers on credit cards in India can be advantageous, but they also come with some drawbacks. Let’s explore the pros and cons:

PROS OF BALANCE TRANSFERS:

Lower Interest Rates

A balance transfer on credit cards involves shifting the outstanding amount from one card to another. This action settles the debt on the initial card while creating an equivalent owed amount on the new credit card. An individual may opt for a balance transfer primarily due to the other card’s proposition of lower interest rates, making it more cost-effective to repay the debt using the new card.

Also Read: Debt consolidation can help you clear your debts, but consider these key factors

Consolidation of Debt

It allows consolidating multiple credit card debts into one, simplifying repayment. Managing a single payment reduces the hassle of tracking multiple due dates and varying interest rates.

Adhil Shetty, CEO, Bankbazaar.com, says, “Opting for a balance transfer when managing debts across multiple credit cards can simplify your financial obligations. It eliminates the hassle of managing various payments on different dates throughout the month. Instead, you’ll only need to handle a single monthly payment, streamlining your financial responsibilities.”

Improved Credit Score

Efficiently managing debt through a balance transfer can positively impact your credit score. Consolidating debt and making timely payments showcase responsible financial behaviour, potentially boosting your creditworthiness.

Saving Money

Lower interest rates can free up funds for other essential expenses or savings, providing some financial help.

CONS OF BALANCE TRANSFERS:

Limitations

The attractive low or 0% interest rates are often introductory offers for a limited time. Once this period expires, the interest rates may spike, potentially higher than the previous card’s rates.

Transfer Fees

Banks might charge a fee for transferring balances, typically a percentage of the transferred amount. This fee can offset potential interest savings, especially for smaller balances.

New Credit Limit Considerations

The new card’s credit limit might not cover the entire transferred balance. In such cases, part of the debt remains on the original card, subject to higher interest rates.

Impact on Credit Score

Applying for a new credit card for balance transfers involves a hard inquiry, which could temporarily lower your credit score. Additionally, closing older accounts after transferring balances may impact your credit history length and, in turn, your score.

Risk of More Debt

Clearing a balance through a transfer might tempt individuals to continue spending on the old card, accumulating more debt and increasing your financial burden.

Shetty explains, “Securing a credit card balance transfer isn’t accessible to everyone. If you’ve been defaulting on your EMI payments or displaying a history of credit negligence, you might encounter difficulties. A prerequisite for qualifying in a balance transfer is a solid credit score.”

That is why it is recommended that before opting for a balance transfer, carefully evaluate your financial situation, including the terms of the new card, transfer fees, post-introductory interest rates, and your repayment capability. When used wisely, balance transfers can be a strategic tool for managing credit card debt, but they require discipline to maximise their benefits and minimise their drawbacks.