Sapna, a Mumbai-based copywriter was on a shopping spree during the last festive season as she was excited about her brother’s wedding. It helped that plastic money had been invented – her shopping went by in a blur as her credit card maxed out.
The after-tremors hit her only later when she realized that she could not pay back the outstanding of Rs.60,000 on her card. She missed her first due date, and the subsequent card statement came tagged with a hefty interest charge and double penalty lopped on to her bill.
Help arrived in the form of her friend Radhika, who told her about the balance transfer option available on credit cards. Sapna had only one card. To facilitate the balance transfer, she approached another card company to get a new card, in order to transfer her dues to it.
Her request was accepted by allowing a balance transfer after charging 2% of her outstanding amount. She also paid Rs.500/- as joining fee for the new card. The new card offered her a 90-day credit period but with a lesser interest charge.
Was the decision taken by Sapna a good one? She paid a high joining fee, transfer fee and also, the credit window offered by the new card came with interest charges.
Balance transfer is an easy way to get rid of credit card dues. But, there are some essential questions to be asked before transferring the dues from one plastic to another. We highlight some here.
Am I charged high interest in transferred balance?
In this world of stiff competition, banks try to attract maximum customers. They don’t mind taking the burden of dues from another card to their shoulders, knowing that you are an unintentional defaulter. But often they take handsome fees for this service. Balance transfer on credit card comes with and without charges. Some banks offer a zero percent credit period for 30-90 days, while others charge interest rates ranging from 1.5% to 2.5%. It all depends upon your bank and card. So make sure to check and compare the rates to know if you are making the right decision.
How to get zero percent offer?
As a promotional offer, some banks offer a zero percent interest rate period for up to 90 days for balance transfer. They charge only a nominal processing fee and transfer fee while offering an interest-free window for some weeks. This period can give you enough time to arrange repayment of the funds. But, before deciding upon a balance transfer facility, check if a zero-interest period is offered for a certain period. If not, try with another company or for some other options like an EMI option or any other ways which are better than balance transfer.
Can I transfer other debts to credit cards?
You can only transfer the balance outstanding from one credit card to another at best. The good news is that you can transfer debts from multiple cards to one card, using the balance transfer option. Before you decide on balance transfer, it is important to know that transferring balance to a new or existing credit card will reduce the overall credit limit of the card. For example, if your card comes with a credit limit of Rs.1 lakh, and if you are transferring Rs.60,000 to it, your limit is reduced to Rs.40,000. It slowly grows as you clear the dues.
How much holiday period will I get?
The holiday period you get on your card is totally dependent on the card you choose. In some cases the holiday period can be as high as 90 days while in other cases it may be limited to 30-45 days. Check with the bank about the holiday period, promotional offer period and the final regular interest rate. Consider a credit card balance transfer only if the interest rate is lower than your existing card and if you get at least 45-90 days holiday period.
Balance transfer or EMI option – which is good?
Cards may offer you two options – a balance transfer to another card or the option to convert the dues to easy EMIs. Converting to EMIs sounds easy to manage, but don’t ignore the high interest that is charged as compared to a balance transfer facility. While considering an EMI option, you may not realize the outflow of money from your purse, and it is going as installments. In most cases, there will be an additional 15% to 18% charge on a monthly basis which is added up to the due amount as you convert it to EMIs. This may result in paying back a higher amount.
There is no denying that balance transfer is a great way to offset your immediate crisis. But a bad switch can make matters even worse. So ask your the above questions before you make a move.