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Home / Money / Calculators /  De-jargoned: Credit card balance transfer

Many people run up bills on their credit cards they find difficult to pay. Some take personal loans to pay this off, and some take a new credit card to pay the bill of the earlier card. One way of avoiding a debt trap is to transfer the outstanding balance to another credit card. But this is a temporary measure and not a final solution if you are in debt. The bigger aim should be to get out of the debt cycle altogether.

HOW TO USE BALANCE TRANSFER

You can transfer the balances on multiple cards to a single card. You can request for the facility through Net or phone banking. You will have to fill up a form by the issuer, providing details such as name of issuing bank, both credit card numbers, expiry date, outstanding amount, latest credit card statement and credit limit. If the issuer approves, it takes 7-15 working days for the balance transfer to be enabled. The new credit card company will send a demand draft or cheque to your existing credit card account; some may even transfer the amount to your Net banking account.

One must ensure that till the balance is transferred, no minimum payments and other charges are missed on the existing credit card. Banks allow balance transfer for a minimum of 2,500-5,000 to a maximum of 75% of the available credit limit. But you cannot transfer to another card of the same issuer.

Regular interest rate (not lower or zero) will apply on payments and purchases made during the repayment period.

Offers vary across issuers. There are schemes with a zero-interest period and some with lower interest rates during the repayment period. For instance, Axis Bank Ltd has two plans. In one, there is no interest for three months (regular rate of 2.95% a month is charged after this period), and 2% processing fee or 199, whichever is higher. In the second plan, for six months, interest rate is 0.75% a month (regular interest after this), and a processing fee of 1% or 100, whichever is higher.

Some issuers have longer-term schemes. For instance, HSBC India cardholders can choose from loan tenures of 3, 6, 9, 12, 18 and 24 months. Interest rates are 15% for 18 and 24 months and 12.49% for the rest. Processing fee is 1% of the balance transfer value subject to a minimum of 149.

MINT MONEY TAKE

Credit cards have high rates of interest—22-48% a year, or 1.83-4% a month. The balance transfer option comes with rates between 18% and 24% a year, or 1.5-2% a month. This may be an option for someone with revolving credit, i.e., someone who pays just the minimum amount or not the full bill. However, check charges and interest rates of the new card. It should not be that after the repayment period, the charges and interest rate are higher on the new credit card than on the earlier one. Also, be mindful of the processing fee. Further, banks keep track of customers who keep transferring balances across cards, and not paying your card bills can affect your credit score.

Opt for the balance transfer route only if you are confident of clearing the dues during the zero or lower interest period. Also, consider the need to transfer balance a sign of poor financial health and take urgent steps to improve it.

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