Credit card: What is a credit card balance transfer, is it a good idea to opt for it?

If you have a large credit card debt or are not in a position to deal with it head-on, there are several ways to ease the burden on your budget. To avoid default, the most common way would be debt consolidation or make the minimum monthly payment. A credit card debt transfer is a more viable and cost-effective option.

With a credit card balance transfer, you transfer your outstanding debt to another credit card and it is usually for a limited time with no interest or lower than usual interest. This process allows you to manage your debt more effectively and reduces total interest paid.

Saving 50 basis points a month means 6 percent a year on a large sum can lead to considerable savings in value terms. So, this is exactly what happens in case of credit card balance transfer.

Let us understand this in more detail here.

What is credit card balance transfer?

This refers to the transfer of credit card balance from one credit card to another usually to buy more time, or to save on interest rate, or for debt consolidation.

What is the key benefit of transferring credit card balance?

The key benefit of transferring credit card balance is to either buy more time offered by the second credit card which could be as high as 45 days, or to incur a lower rate of interest charged by the second credit card.

Another key benefit of transferring credit card balance is to do debt consolidation. This means transferring the credit card balance of multiple cards into one. This helps the investor in keeping track of one credit card statement and one deadline instead of multiple deadlines for a number of cards.

What are the factors that you need to check before opting for credit transfer?

One of the key determinants to opt for credit transfer is lower interest rate. If the new credit card charges a lower or at least same interest rate only then it makes sense to opt for it.

Second key factor would be processing charges which should be low enough to justify the savings accrued from the transfer. Third, there should not be any additional levy, charge or penalty stemming from the transfer that could negate the savings you earned.

What are the steps to follow before opting for credit card balance transfer?

First of all, you need to compute the total dues, interest rates and penalty charges. Then you can look for a credit card that charges a lower rate of interest than what you currently pay.

Importantly, you need to check if the credit limit of this new card is more than your total debt. Examine the processing charges to check if this would be worth transferring the credit card balance. Apply for the credit card balance transfer and if approved — you can pay your debt in order to transfer the same to a new bank.

Disclaimer: Mint has a tie-up with fin-techs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.