7 Tips to Make the Most of a Balance Transfer Credit Card

31 MAY, 2022

Credit cards are an excellent tool for managing emergency expenses without seeking external financial aid. However, if the user is not careful, the expenses can mount making it impossible to repay the borrowed amount in due time. Inability to repay the outstanding balance by the due date will attract higher interest charges and negatively impact the credit score. Moreover, it can impact your ability to get a higher credit amount in the future. However, there is a smart way to avoid this.

Read on to learn more about the balance transfer credit card and effective tips to use it wisely.

What is a Balance Transfer Credit Card?

Balance transfer refers to the process of transferring the outstanding due amount. A balance transfer credit card is a type of credit card which allows users to transfer outstanding balances from other credit card accounts. It is possible to transfer the amount from one credit card account to another account at a different credit company. The best balance transfer credit card charges zero interest rate on the outstanding amount during the initial period. The primary objective of transferring an unpaid balance is to minimise the interest expenses associated with the due amount. Usually, credit cards have a higher interest rate. So, if you have spent more than what is possible to repay, it can significantly add to your financial burdens.

How Does Credit Card Balance Transfer work?

Credit cards for balance transfer can be a great way to save money on high-interest credit card debt. By transferring your balance to a new credit card with a lower interest rate, you can reduce the amount of interest you pay each month, allowing you to pay off your debt more quickly.

Credit cards for balance transfers involve the following steps:

Step 1. Apply for a new card - A credit card with 0% APR is always preferential for balance transfer. So find a credit card issuer with a longer interest-free period, preferably 90 days to manage your other card balances.

Step 2. Start with the transfer process - Credit cards for balance transfers are available online. So provide information about the due balance, issuer name and the account information to get started.

Step 3. Wait for Approval - Once the issuer approves balance transfer, the outstanding balance of your old account gets paid directly. Do confirm the approval time as it could take two weeks or longer, depending on the issuer.

Tips To Effectively Use Balance Transfer Credit Cards

A balance transfer credit card can be a great asset when you know how to use it wisely. Here are some practical tips for using balance transfer credit cards.

1. Planning is pivotal

Ensure that you have a repayment plan in place before you opt for a balance transfer credit card. The plan should clarify how to settle your dues and avoid high-interest charges. Commit to paying a particular debt amount within a given period. It is crucial to create a monthly budget and stick to it. You must understand that you will have to pay a minimum amount each month, even with balance transfer credit cards. Planning plays a crucial role in keeping finances in order and ensuring that you don’t slip into a debt spiral.

2. Decide the debt amount and EMIs

Decide two things before choosing a balance transfer credit card, i.e., the debt amount you will be transferring and the EMIs. It is possible to move a partial or complete debt amount to another credit card. You need to factor in your repayment capacity, income, etc. It will help decide the credit line for a balance transfer credit card. Another thing that you need to contemplate is the EMI as many banks offer EMI facilities  for a balance transfer. Deciding the total duration of EMIs is vital to repay the loan amount effectively.

3. Review & compare different balance transfer cards

It is important to review the features and benefits of different balance transfer cards to understand the pros and cons. Compare different balance transfer cards before applying for one. Many balance transfer credit cards charge zero interest rates from users on the balance transfer amount. Don’t blindly opt for a balance transfer credit card with zero interest rate. Learn about the associated processes as it could significantly add to your costs. For instance, knowing the balance transfer charge or processing fee is vital to making the right decisions.

4. Understand the terms and conditions carefully

The terms and conditions associated with a credit card play a crucial role in how beneficial the new credit card will be for you. You must spend some time learning about the terms and conditions of your new card. These terms can vary greatly, depending on your card issuer’s policies. You should know what your APR is for new purchases and balance transfers. A zero percent APR on balance transfer doesn’t mean that it will be the same for new purchases. If the APR on new purchases is high, refrain from using this card to buy goods and services.

5. Transfer the balance amount timely

A repayment plan is highly recommended to avoid any mess. Most credit cards promoting the balance transfer feature with zero percent interest rate offer this benefit only for the initial period. You need to transfer the balance within a short period after opening a new account to reap the full benefits. Ideally, you should transfer the balance amount within 30 to 90 days of opening your account.

6. Automate your payments

After you have transferred the balance, set up automatic monthly payments to repay your debt in due time. It is recommended to pay a majority of the pending amount before the zero-interest rate period is over. Automating your payments will ensure that you never fail on monthly instalments. It requires factoring in the monthly income and creating a strict budget for things. Automating these payments also eliminates the need for manual intervention every time the due date arrives. You won’t have to worry about missing any due dates.

7. Don’t close old credit cards after a balance transfer

One of the most common mistakes that people commit is closing their old credit cards after they have transferred the balance. Closing an old credit card can hamper your credit score and history. It will also increase your credit utilisation ratio as you will have fewer cards to avail credit from. The credit utilisation ratio refers to the revolving credit that one uses divided by the total credit limit available. For example, if you use 30,000 of your 1,00,000 credit limit available, the credit utilisation ratio will be 30%. So, it is best to avoid closing old cards because it will increase your reliance on the new credit card, increase the utilisation ratio, and adversely impact your credit score.

Benefits of Credit Card Balance Transfer

Credit card debt can be a source of financial stress for many people. If you have high-interest credit card debt, you may feel like you're stuck in a never-ending cycle of making minimum payments and struggling to make ends meet. However, there is a solution that can help you manage your debt more effectively: a credit card for balance transfer.

Let’s see what is a balance transfer credit card benefit includes -

1. Savings prospects - No need to pay the incurred interest when you transfer card outstanding balance.
2. Convenience - One of the convenient options for managing huge debt as you can do it online without going anywhere.
3. Improve credit - Credit score reduces when there is a huge debt reflecting in your report. Credit card balance transfer removes the interest aspect making repayment easier and improving credit score.

In a Nutshell

A balance transfer credit card can be a boon for people with a high credit utilisation ratio. It allows you to reduce the interest charges on the outstanding debt and save money. The above given  tips will help you effectively use a balance transfer credit card.

“What is a balance transfer credit card?” is easy to understand and proceed with if you know the steps. And the balance transfer facility can be a useful option for those looking to consolidate their debt. It's important to compare the offers as there is a fee involved. So keep the tips in mind and maximise the benefits. You can move your existing credit card balances to a new card with a lower interest rate, potentially saving you money on interest charges and helping you pay off your debt more quickly.