A balance transfer is an accumulation of all your debts or part of your debts transferred from one credit card to any other card to another to save on repayments of interest. A balance transfer is one easy, convenient, and effective way to keep track of all your balances and payments. However, the transfer has certain restrictions; you can transfer only the amount that falls under the credit limit of your card to which you have transferred the balance. For example, if the credit limit of your card is about $5,000, you can only transfer a balance of $5,000.
The eligibility criteria for a balance transfer credit card is the same as other cards wherein your financial history and repayment capacity is analyzed and verified before approving your request for the card.
Know the Types of Balance Transfer
Balance transfer works similarly on all types of loans and cards. However, you can make the best use of the balance transfer feature through three major types:
- Paying off the outstanding loan amount by transferring it to another loan
- Paying off the outstanding debt in a credit card by transferring it to an existing credit card with a lower interest rate
- Paying off the dues in partial or complete by transferring the balance on another new credit card
Completing a Balance Transfer
To complete a balance transfer and accumulate all your debts partial or complete, you need to follow the steps below:
- When you make up your mind to make a balance transfer, it is important to mention your account numbers, how much you wish to transfer, and whom you wish to pay.
- After sending a request for the same, the approver assigned by the respective card issuer verifies and approves your transfer request.
- Once the approver approves the request, the respective company gets in touch with the creditors whom you have indicated to pay the dues.
- After the communication, the credit card company makes the payment on your behalf and saves you from any late fees of pending dues. However, a fee of 3% to 5% of the transferred debt is what you have to pay extra as the balance transfer rate of the interest.
Know the Advantages of Balance Transfer
To get deeper into understanding balance transfer, get to know the benefits of credit card balance transfer:
- You tend to enjoy the benefits of a low introductory APR that helps you cut down the time required to reduce your debts. With this, you save a lot of amount on interest repayments.
- You enjoy the ease and convenience of simplifying your balances. When all the debts and balances are consolidated into one card, you need to remember only one payment and one due date rather than keeping in mind multiple due dates and payment structures.
- Almost all credit cards come with a transfer fee of around 3% to 5% of the debts. However, you can opt to have a card that offers a fee on a specified amount so that you save big and spend less on interest.
- If you follow the rules and use the feature wisely, this is a blessing in disguise as an excellent debt-reduction strategy.
Discover the Disadvantages of Balance Transfer
There are ample benefits to enjoy while using the feature of the balance transfer. However, the other side of the card has certain disadvantages:
- One major drawback is that not everyone gets to qualify for a balance transfer card or loan. You need to have a good credit score and an inspiring financial history to get your application approved.
- In the short run, you may face a period with low credit score because of the debts you owe. All introductory offers and benefits are for a temporary period. So, do not get excited and pulled towards the card to load all your dues. Think wisely before deciding to have all your balance transfer done on account.
The Bottom Line
The primary functionality of a balance transfer is to save on interest and help you get out of debt faster and conveniently. This is the key principle of enjoying the maximum benefits of this feature or functionality. However, even a small misuse can cause big damage to you and your credit score in the future run. So, make a smart choice and use the option of balance transfer wisely.