Credit card balance transfer is a powerful financial tool that can help you consolidate debt and save money on interest charges. If you're struggling with high-interest credit card debt, a balance transfer can help you pay down your debt more quickly and efficiently.
In this blog, we'll explore the ins and outs of balance transfers, including how they work, the benefits and drawbacks, and the best strategies for making them work for you. Whether you're new to credit cards or a seasoned pro, this blog will provide you with the information and insights you need to make informed decisions about your finances. So, let's get started!
Choosing the Right Balance Transfer Credit Card
Transferring the balance from one credit card to another is not a difficult process. You can do it yourself, or your bank can help you out by contacting the issuing bank of your existing card and requesting them to transfer your outstanding amount to another bank account. The steps involved in this process are as follows:
- Check eligibility - Before transferring your balance, make sure that both cards belong to the same issuer (for example, HDFC Bank) and offer similar terms and conditions like tenure duration, etc. Otherwise, there will be no point in switching over to another card because you'll still have high-interest rates on all purchases made using either card, even if they're from different banks!
- Compare offers - Once you've verified these two criteria above, compare all available offers from other banks as well; some may offer lower interest rates than others but charge higher late payment fees, which could end up costing more overall compared with other options available today so always go through all details before making any decision about changing banks or transferring balances across platforms.
- Check the interest rate: The interest rate is a key factor to consider while choosing a balance transfer credit card. You should check if there are any penalties for late payments or cash advances, as well as what type of APR you'll be charged if you miss a payment or go over your limit.
- Read the terms and conditions: Make sure that you understand all of the terms and conditions associated with your balance transfer credit card before signing up for one! This will help ensure that you don't get stuck paying more than expected at some point down the road (or worse).
How to Transfer Balance from a Credit Card?
The balance transfer process is simple. You just need to gather the necessary documents, choose a card with the lowest interest rate and apply for it.
To begin with, you need to check whether your existing credit card has an introductory offer on balance transfers or not. If it does not have any special offers, then you should compare various banks' interest rates and choose one based on their terms and conditions regarding fees etc.
Balance Transfer Credit Cards
Here's a list of Indian credit cards with the lowest balance transfer rates:
State Bank of India: SBI's facility for balance transfers between credit cards can be initiated by either logging into your account or sending a specific SMS, or even just calling their customer care facilities. Repayment periods can be 2 months or 6 months, but if you choose the longer term, an additional interest of 1.7% per month will be charged.
- HSBC: HSBC Bank offers a balance transfer facility with tenures ranging from 3 to 24 months. The interest rate is charged as a percentage of the principal sum borrowed, and there may be a processing fee. Like SBI, customers can send an SMS to request the balance transfer service or call to speak with one of its representatives directly. HSBC charges no fee for completing a balance transfer that results in foreclosure.
- Kotak Mahindra Bank: Kotak Mahindra Bank also offers balance transfer facilities. It allows you to transfer a minimum amount of Rs 2,500, and there is no limit on the maximum amount, as long as it's not more than 75% of your credit card limit. There is a processing fee that will be charged for the options, and it is based on the amount being transferred. The application process—calls/SMS or online portal available through the bank—can be chosen when initiating the transfer.
- Axis Bank: Axis Bank also offers balance transfers, with minimum transfers of Rs. 5,000 available. The tenures are 3 months and 6 months; the shorter one doesn't carry any interest, while the latter will have a charge applied to it.
- Standard Chartered Bank: Standard Chartered Bank allows customers to transfer balances of up to Rs. 5 lakhs to their SC credit card account. The card's interest rate is 0.99 percent a month for the first 6 months, after which time it will increase. Customers can also make a 5% minimum payment each month on transferred balances and have the facility by sending an SMS to their bank.
Benefits and Drawbacks of Credit Card Balance Transfer
Credit card balance transfers have several benefits and drawbacks, depending on your financial situation and how you use them. Here are some of them:
- Save money on interest: Many balance transfer credit cards offer a 0% introductory APR on balance transfers for a period of 6 to 18 months. This means you can transfer your high-interest debt to the new card and pay no interest on it during the promotional period. This can save you a significant amount of money, especially if you have a large balance.
- Debt Consolidation: Balance transfers allow you to consolidate multiple credit card balances into a single account, making it easier to manage debt and keep track of payments.
- Capitalise on the perks of a new card: Many balance transfer credit cards also offer other rewards and benefits, such as cashback, travel points, and sign-up bonuses. You can earn these rewards while you're paying off your debt.
- Improve your credit: A balance transfer can help you improve your credit score in a few ways.
First, transferring debt to a new card can reduce your credit utilisation ratio, which is a major factor in your credit score.
Second, if you can pay off the debt during the introductory period, you'll reduce your overall debt burden and improve your credit history.
- Balance Transfer Fees: Many credit card issuers charge a balance transfer fee, typically around 3-5% of the transferred amount. This fee can offset some of the interest savings, especially if you're transferring a large balance.
- Limited time to repay: The introductory 0% APR on balance transfers is only temporary. After the promotional period ends, the standard APR on the card will go into effect. This could be significantly higher than the interest rate you're currently paying. So, it's important to have a plan for paying off the debt before the introductory period ends.
- Impact on Credit Score: Applying for a new credit card and transferring a balance can have a temporary negative impact on your credit score. Additionally, closing old credit card accounts can also affect your credit utilisation ratio, which is a factor in your credit score.
- Penalty Rates: If you miss a payment or fail to pay off the transferred balance during the introductory period, you may face penalty interest rates, which can be very high.
If you are struggling with high-interest debt, balance transfer credit cards can be an effective way to manage and reduce it. However, selecting the right card for your needs and having a clear repayment plan in place is crucial to making the most of these cards.
To simplify the selection process, it's important to compare your options and choose the best one.
You can use Select by Finology to compare credit cards and find the ideal balance transfer card that aligns with your financial goals. Taking this step can help you make a positive move towards achieving your financial freedom. Start comparing today!