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Credit cards offer a lot of convenience, especially to traders, who use plastic money profusely as a source of easy credit. However, sometimes the experience can be nightmarish. Some thing similar happened with Mumbai-based trader, Manish, who has been using credit cards for quite a long time now. But lately, he's been extremely dissatisfied with his credit card provider. Although Manish wanted to get rid of the card as soon as possible, his inability to pay off his dues had kept him tied up with the company. For people like Mainsh, who wish to get discontinue with a credit card, but do not have the means to do so immediately, balance transfer can be a plausible solution.What is balance transfer?It is facility offered by credit card issuing companies wherein any outstanding balance on a credit card can be transferred to a less-used or a new credit card of another company. Banks, usually, encourage such a practice and offer a either low-interest or interest free period as incentives for customers who use balance transfer facility.If you opt for balance transfer, the less-used card or the new card from which the facility is being used will lower the credit limit proportionately to the balance transfer amount. For instance, if your credit limit is Rs 1,00,000 on the new card and if you have opted for a balance transfer of around Rs 40,000, your credit limit will be reduced to Rs 60,000. Also, balance transfer limit cannot exceed 80 per cent of the credit limit.When should you use this facility?* High interest rate: Interest rates on credit cards are quite high in India. Therefore, if you find a card that charges lower interest rate compared with your current credit card, it is better to get the balance transferred. This way, interest cost can be reduced by transferring the outstanding balance onto a new credit card.* Dissatisfied with the service: For cardholders, who are not content with the service provided by the current credit card company, due to various issues such as improper billing, non-receipt of bill, etc, this can be a wonderful way to getting rid of the company.* Inability to finance the debt: If you have a huge outstanding balance on your credit card and unable to finance it, balance transfer can offer temporary relief. This can be used by cardholders in case they have a short- term liquidity crunch, or there is an exorbitant debt to pay offWhat are the costs involved?In order to induce customers, banks offer low rate of interest or sometime even zero interest on balance transfer for specified period. It is important to note that these so-called attractive rates (zero or low rates) are valid only for a limited period. Introductory period is usually between 3 and 6 months. After this, the bank will start charging the normal rate of interest, which currently ranges between 38 per cent and 42 per cent. A processing fee is also levied by banks which can be in the range of 2 per cent and 5 per cent of the total amount.Let us take the example of Bank ABC that offers two plans for balance transfer:* Transfer at 0 per cent interest rate for 3 months, 2.95 per cent interest rate after the 3rd month and 2 per cent processing fee or Rs 199, whichever is higher.* Transfer at 0.75 per cent for 6 months, 2.95 per cent interest after the 6th month and 1 per cent processing fee or Rs 100, whichever is higher.What is the process?* Inform the credit card company to whom you would want your outstanding debt to be transferred to* Fill in the form provided by them with details pertaining to your old credit card along with a copy of your latest credit card bill and submit it* Within 7 to 10 working days, the credit card company will send you a demand draft (DD) in the name of your old credit card issuer. Submit this DD to your old credit card company. They will in turn clear your outstanding payment and the same will be transferred to the new credit card issuerPoints to note* Balance of transfer processing takes 7 to 10 working days. While you're waiting to transfer your balance to get through, there are chances that you miss the due date for payment on your old card. That means you haven't paid the minimum amount that account for default and can affect your credit report. So make sure you pay the minimum due amount when the balance is being transferred onto the new card* Keep a track of the period for which you enjoy low interest or zero interest and make sure you pay off your dues within that time period* Any purchases and expenses on the card on which you have opted for balance of transfer will not fall under the low or zero interest purviewIn order to make the most of this facility, make sure you make the maximum payment during the low interest or interest free period so that your finances are not impacted when the interest rate kicks in. Also more importantly, note that moving from one card to another is provides you with temporary interest relief. Take advantage of that and reduce your dues. Remember, the credit card company is betting on you not clearing the debts in time because that when they start making money.The writer is CEO at the BankBazaar.com
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