When is the credit card balance transfer option useful? How to do it and what are its advantages and disadvantages? Understand it in detail here.
Credit cards are very useful these days. Spending money using a credit card is like taking a loan from a bank and spending it. The only difference is that you are given a discount period to repay the loan taken from a credit card. If you repay the loan during that period, you will not have to pay any interest. But if you repay the amount within the extended period, you will have to pay a higher interest rate.
In such a situation, many times people face a situation where they do not have money in their account to pay the credit card balance and they get caught in the debt trap. In such a situation, the option of credit card balance transfer can be useful for you. But for this, you need to have more than one credit card. We tell you what credit card balance transfer is, when it is beneficial for you and when it is a loss.
What is a balance transfer?
In a balance transfer, you pay off a loan by transferring money from one credit card to another. For this, your other credit card (from which you are transferring the money) must have a higher limit because you can only transfer up to 75 percent of your credit card balance. The bank whose card you are using for the balance transfer charges you GST and processing fees for this facility.
What is the benefit of credit card balance transfer?
The advantage of a balance transfer is that you can pay off the debt on the first card with the amount on the second credit card. Also, it makes you responsible for the debt on the second card (from which the amount has been transferred). But the advantage of this is that you get a new grace period. If you repay the amount within that extended period, you will not have to pay any interest. Also, you are protected from becoming a defaulter and your credit score is not affected.
What is the balance transfer method?
There are two ways to transfer the balance. The first method is that you have to call the bank’s customer care and transfer the balance from them. The second way is that you transfer the balance yourself from the bank’s app or website. For this, you will need the details of both the cards. You can also choose the option to repay the balance in a lump sum or through EMI option.
Balance transfers can become a problem in this situation.
It is okay if you transfer your balance once or twice. But if you opt for this option every day, it will affect your CIBIL score. Moreover, if you opt for the balance transfer option and fail to repay it within the extended period, then the risk of getting into debt trap increases once again as the interest on credit card bills is very high and it is charged on a compound interest basis.