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ESG
If credit card bills are becoming a burden, you should consider a credit card balance transfer. It offers significant advantages to help overcome the burden of high interest rates and mounting credit card debt. Unsure what credit card balance transfer means and how it can help? Then this article is for you.
What is a balance transfer?
It’s the process of transferring the outstanding balance from one credit card to another, usually with a lower interest rate. It allows you to take advantage of better features while reducing your overall debt burden.
You can also use this feature to consolidate your debt from multiple credit cards to bring outstanding balances to a single bill. This helps reduce the overall interest you owe per month and lets you pay off your debt faster.
How do balance transfers work?
Understanding how balance transfers work is essential to making the most of this feature. Here's a step-by-step breakdown:
Selecting a new credit card:
The first step involves shopping around for a new credit card that offers a lower interest rate than your current card. Many banks periodically offer introductory rates, which can be as low as 0% for a set period to attract new customers.
Application and approval:
Once you have selected a card, you'll need to apply and get approved. During the application process, you'll be asked about the balances you wish to transfer, the account numbers, and the respective amounts.
Transfer fees:
While the promise of lower interest is alluring, it's essential to be aware of the balance transfer fees. Some cards may charge a one-time fee, which typically ranges between 1% to 5% of the transferred amount. At this point, you need to assess if the amount you will save through a lower interest rate is more than the balance transfer fees you will end up paying.
Once the balance transfer is complete, you'll benefit from the new card's introductory interest rate. This period varies from bank to bank and is typically anywhere between six months to a year or more.
- Reverting interest rate:
Once the introductory period ends, the card's interest rate will revert to its standard rate. It's crucial to be aware of this rate as it can sometimes be higher than your original card.
- Repaying the transferred balance:
It’s crucial to make at least the minimum payments on time every month. Remember, if you fail to repay the entire transferred amount by the end of the introductory period, you'll start incurring interest on the remaining amount.
Benefits of a credit card balance transfer
Lower interest costs:
The primary advantage of a balance transfer is the potential for lower interest costs. By moving your debt to a card with a lower interest rate or one with a 0% promotional offer, you can save money on interest payments.
Simplified finances:
Consolidating your debts onto one card simplifies your financial management as you have a single due date and one monthly payment to keep track of. Hence, if you have multiple credit card bills to keep up with, you can opt for a balance transfer to consolidate them into one.
Debt paydown:
With lower interest costs, a large part of your payment goes towards reducing the principal debt than the interest, allowing you to pay down your credit card debt faster.
Improved credit score:
Responsible management of a balance transfer can positively impact your credit score by reducing your credit utilisation ratio and showcasing your commitment to managing debt. This is important because your credit score is assessed every time you apply for any type of loan – secured or unsecured.
Ending note
A balance transfer can form a strategic part of your debt repayment plan. By understanding how balance transfers work and carefully evaluating your options, you can take control of your finances and work towards a debt-free future. You can also consult with a financial expert to determine if a balance transfer is the right choice for your present financial situation before you make this decision.
Switch to an Metra Trust Credit Card to transfer your outstanding balances. By doing so, you enjoy lower interest rates starting at just 9% and exclusive benefits. Explore our credit cards here.
Disclaimer
The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Metra Trust or its affiliates to any licensing or registration requirements. Metra Trust shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.