How To Use Balance Transfer To Cut Down Existing Credit Card Debt

By BankBazaar | October 16, 2017

How To Use Balance Transfer To Cut Down Existing Credit Card Debt

What is “Balance Transfer” on Credit Card?

Let us assume that Mr. A has multiple Credit Cards and he hasn’t been making timely repayments of his Credit Card debt every month. Due to this, he has to pay heavy interest at the rate of 3.5% per month (42% per annum) on the balance outstanding against his card.

Eventually, he finds it difficult to manage the dues on his cards, which further pile up month on month creating a large amount of debt. In this situation, Mr. A should consider going in for a balance transfer facility with another Credit Card provider.

In short, a balance transfer means switching your Credit Card outstanding balance or dues to (typically) a new Credit Card. In other words, you can apply for a new Credit Card with a balance transfer option wherein your new card company will pay all your previous dues to the old Credit Card Company.

Not only this, the new card company may also offer you a lower rate of interest on the outstanding balance as well as other benefits like an interest free period, fixed interest rate for first 3 months or maybe even more reward points, depending on their internal guidelines.

Additional Reading: Myths About Credit Card Rewards

How does a balance transfer work?

If you decide to go for a balance transfer, then, with very little documentation, you can easily get your balance transferred to the new Credit Card within 5-7 working days. Here, the new Credit Card company issues a cheque/DD or makes an online payment to the old Credit Card company.

Additional Reading: Top 6 Balance Transfer Credit Cards In India

Points to remember before you make the switch

It is very important to understand the terms and conditions of a balance transfer before you switch. We recommend watching out for the following clauses before switching over to a new Credit Card for a balance transfer:

  1. Many Credit Card companies offer 0% APR (Annual Percentage Rate) on the balance transfer amount for the first few months. However, they do not provide any interest free/ grace period for any fresh purchases made on the Credit Card. The borrower has be very cautious with this type of condition. In this case, we advise the borrower to use the new card purely for debt repayment and try not to use the card for any fresh purchases.
  2. The Credit Card company might offer a rate of interest as low as 0% for the first few months, but they might charge you with a very high processing fee. The borrower should be watchful about cards with low interest and high processing fee and must check whether switching over is really profitable or not.
  3. The borrower should also verify the APR after the end of the promotional offer. Some Credit Card companies offer lower APR in the initial 2-3 months, but might charge a very high rate later.And this rate can even be higher than your existing card. If this is the scenario, then the borrower has to be vigilant as he or she might end up repaying more interest in the long run.
  4. Before finalising the balance transfer, the borrower should check the minimum and maximum amount of the balance transfer allowed by new card company. Generally, the card companies allow a minimum transfer of Rs. 2,500 and a maximum of up to 75% of your credit limit with your existing card company.

Additional Reading: Balance Transfer Between Credit Cards: Things To Consider

Understand the concept with an example

Let us assume that Mr. A regularly repays his Credit Card bill/ dues without delay. But this time, his Credit Card bill went up to Rs. 1 lakh, which he is finding difficult to repay by the due date.

He is worried that if he doesn’t pay his complete Credit Card bill amount by the due date, his Credit Card company will charge him a heavy Annual Percentage Rate (say at 3.5% per month) from the day he made his purchases.

Now, one option is to repay the complete amount with a heavy ROI or get his Credit Card balance transferred to another card issuer that is offering lucrative promotional offers.

Let us look into all the options in detail and see which one will suit Mr. A:

Outstanding Bill Amount: Rs.1,00,000/-

Existing APR (Annual Percentage Rate): 3.5% per month

Let us assume that interest is charged on the basis of simple interest calculation

Interest amount to be paid for 30 days =Rs.3,500

Promotional offer provided by new card issuer:

Plans Available Processing Fees
Plan A – 0% per month for 2 months 2% or Rs. 199, whichever is higher
Plan B – 1.7% per month for 6 months No processing fees

Considering all of the above, Mr. A has 3 options:

Option I Stay with his existing Credit Card and repay ROI at 3.5% per month
Option II Balance transfer with Plan A (0% per month & 2% processing fee)
Option III Balance Transfer with Plan B (1.7% per month with zero processing fee)

Now, before deciding on any option, Mr. A has to first analyse his future plan of repayment i.e. how much time he needs to repay his existing debt of Rs. 1,00,000. The time period taken to repay the debt is key for deciding the right option.

Additional Reading: Shred Those Credit Card Debts To Nothing!

Calculation for debt repayment in two different time periods of 2 months and 6 months

Repay debt in 2 months:

Option I: If he stays with the existing Credit Card, and takes 2 months to repay Rs.1,00,000, then he might have to pay an additional Rs. 7,000 as interest to the Credit Card company (APR=3.5% pm).

Option II: He can get his balance transferred and only pay a processing fee of 2% i.e. Rs.2,000/- and no interest (please refer Plan A with 2% Processing Fee)

 Option III: If he opts for Plan B, and agrees to repay 1.7% per month as interest, then he will have to pay Rs. 3,400/- as interest amount to the lender (for 2 months).

So, in this case wherein Mr. A has short-term plan of 2 months to make repayment, we suggest him to opt for Balance Transfer with Plan A (0% pm for 2 months)

Repay Debt in 6 months:

Option I: Mr. A has to repay Rs. 21,000 as interest to the bank (at 3.5% pm and 21% APR for 6 months)

Option II: Mr. A has to repay 0% for first 2 months and 3.5% each month for next 4 months. He will end up paying Rs. 14,000 as interest and Rs. 2,000 as processing fee i.e. Rs. 16,000 in total.

Option III: He has to pay @1.7% pm i.e. Rs. 10,200 for 6 months as interest.

In this case, the most cost effective is Plan B.

From the above illustrations, it can be concluded that going for a balance transfer can be a better option provided all the terms and conditions are acceptable to you.

Balance transfers are good, but if you’re diligent with your repayment then you don’t have to worry about all these calculations. Defaulting your Credit Card payments can affect your Credit Score too.

Additional Reading: Terrific Ways To Build Your Credit Score

Check your Experian Credit Score for FREE by clicking on this link!

And if your score is green, then you can definitely think about getting a Credit Card.

All information including news articles and blogs published on this website are strictly for general information purpose only. BankBazaar does not provide any warranty about the authenticity and accuracy of such information. BankBazaar will not be held responsible for any loss and/or damage that arises or is incurred by use of such information. Rates and offers as may be applicable at the time of applying for a product may vary from that mentioned above. Please visit www.bankbazaar.com for the latest rates/offers.

46 thoughts on “How To Use Balance Transfer To Cut Down Existing Credit Card Debt

  1. AvatarGora Chakrabarty

    Dear Madam,
    this is Gora Chakrabarty from Pune,
    I’m using Axis Bank credit card having limit of 110000 & SBI Credit card having limit of 68000.
    now my outstanding is for Axis 67000 & for SBI 42000.
    I’M paying just minimum amount every month.
    I’m getting hopeless to manage this payment.
    Please guide me if any way to get cleared and only one EMI will be there.

    Reply
    1. AvatarTeam BankBazaar

      Hi Gora Chakrabarty,

      Thanks for writing to us. The first thing you need to do is manage your Credit Card bills effectively. Making minimum payments is a bad idea as it affects your Credit Score as well. As a result, you might face trouble getting your loans approved. Plan your money well and stick to your monthly budget. Start by paying off the most expensive Credit Card balance. You can also ask your bank if your balance can be converted into EMIs.

      Cheers,
      Team BankBazaar

      Reply
  2. AvatarVINISH P

    Thanks for the info. I have one clarification. In the second illustration where 6 months is the tenure and 1.7% p.m is the interest rate with no processing fee and if I pay 30000 in the first month,whether interest will be charged on 70000 or is it for 100000

    Reply
    1. AvatarTeam BankBazaar

      Hi Vinish,

      The interest will be calculated on the outstanding balance of Rs. 1,00,000 until you pay the Rs. 30,000. Then, the interest will be calculated proportionally depending on the date on which you pay that Rs. 30,000.

      Cheers,
      Team BankBazaar

      Reply
    1. AvatarTeam BankBazaar

      Hi Ajith,

      Thanks for your valuable feedback. Please keep reading our blog for more on personal finance.

      Cheers!
      Team BankBazaar

      Reply
  3. AvatarSiva Prasad

    In SBI card, i found 2 options on Balance transer, one is Balance transfer on EMI in 6 months 0.5 % interest with processing fees and -second one is Balance transfer with 1.7% interest in 180 days.

    I understood the first one, that is i have to pay it in monthly emi and i didn’t understand the second one that is Balance transfer with 1.7% interest in 180 days– i have a balance of 40000, 180days means, can i pay 40000+interest in any day with in 180 days, how i have to pay ?

    Please advise

    Reply
    1. AvatarTeam BankBazaar

      Hi Siva,

      The second option could mean that the interest on your balance will be charged at 1.7% for 180 days and at the regular rate thereafter. However, we advise that you contact SBI for clarification and details.

      Cheers,
      Team BankBazaar

      Reply
    1. AvatarTeam BankBazaar

      Hi Aman,

      Thank you for your valuable feedback. Do keep reading our blog for more on personal finance.

      Cheers,
      Team BankBazaar

      Reply
  4. AvatarSunny

    Hi,
    Quick question. I have two credit cards, one with SBI and one with ICICI.
    I had purchased a laptop using the SBI card worth Rs. 60000 in June, 2016 and converted the purchase to EMI for 12 months.
    Now i have a new ICICI card that becomes free for me if i make a certain amount of purchase.
    Can i transfer the remaining amount to ICICI for getting the benefit above mentioned.
    I have been paying the EMIs on time and am good for future payments as well.

    Can you please suggest if this is worth it?

    Thanks,
    Sunny B.

    Reply
    1. AvatarTeam BankBazaar

      Hi Sunny,

      Banks may not allow a balance transfer if you have opted for EMIs. You will need to check with SBI about this. Another thing you need to check (assuming that a balance transfer is possible) is whether ICICI will offer you a free interest period for balance transfer. Please make efforts to understand exactly what the terms and conditions of the transfer are before opting for one.

      Cheers,
      Team BankBazaar

      Reply
  5. AvatarNaga

    I want balance transfer from SBI , Sum of Rs65,000. Please can you suggest me go to EMI in 6 months 0.5 % interest with processing fees or -second one is Balance transfer with 1.7% interest in 180 days.

    Please advise….

    Reply
    1. AvatarTeam BankBazaar

      Hi Naga,

      You will need to calculate the interest outgo plus processing fee for each option. Ideally, you should choose the one with the lowest cost.

      Cheers,
      Team BankBazaar

      Reply
  6. Avatararjun

    very good explanation and easy to understand with illustration example.Now i got clarity on this.
    Thank you so much.

    Reply
  7. AvatarSURAJ

    I HAVE A HDFC CREDIT CARD AND ITS OUTSTANDING IS RS. 15000/- AND I WANT TO BALANCE TRANSFER FROM SBI CARD , THERE ARE 2 OPTION FROM SBI CARD WITH PROCESSING FEES 2% NO INTERESE IN FOR 60 DAYS AND 1.7% WITHOUT PROCESSING FEES FOR 180 DAYS , IF I CHOOSE SECOND ONE THEN WHAT WILL BE MY EMI FOR THAT

    Reply
    1. AvatarTeam BankBazaar

      Hi Suraj, We would love to help but we only provide general tips and advice on Personal Finance and are unable to provide guidance on specific queries. It would be best to get in touch with SBI customer care to understand what the best option for you will be.

      Cheers,
      Team BankBazaar

      Reply
  8. AvatarSneha

    Hi ,

    I have an outstanding balance of 57000 to be paid on my HDFC credit card , which is difficlut to pay at one go . Kindly suggest the best option to cut down the debt . I can afford to pay 7000 per month to clear the debt .

    regards
    sneha D

    Reply
    1. AvatarTeam BankBazaar

      Hi Sneha, Please talk to bank and see if the balance can be converted to an EMI. You can even ask them for a tenure extension if you have already converted the amount to EMIs. If nothing works, you can do a balance transfer to another bank which offers EMI options and offers 0% interest payments for a certain period.

      Reply
  9. Avataranandbabu

    I Made wrong balance transfer to a debit card instead of credit card following my friend, Now I am not getting response from SBI about this Issue. please advice what steps I want to take for reversal of the process.

    Reply
    1. AvatarTeam BankBazaar

      Hi AnandBabu,

      Reach out to your bank via telebanking service and place a request with them to return/reverse these funds back to your account. Your bank may request for a written confirmation from you and will give you an ETA to get this money back. Hang in there, your bank will definetely help you resolve this problem.
      Cheers,
      Team BankBazaar

      Reply
  10. AvatarAbhishek Srivastava

    I have to balance transfer of my hdfc balance thru sbi credit card. There are two options available in mode of delivery,
    1. Registered Address
    2. Drop box

    I want to know about drop box. what is that? what happened if opt same?

    Reply
    1. AvatarTeam BankBazaar

      Hi Abhishek Srivastava,
      If you want to pay your SBI Credit Card bill using a HDFC cheque, you can either send it to the address that SBI provides or put it in the SBI dropboxes placed at ATMs or branches specifically for Credit Card bill payments.

      Cheers,
      Team BankBazaar

      Reply
  11. Avataranand

    Hi, Thanks for the explanation. Need some clarity on balance transfer – 6 months option

    assume my outstanding is 100,000 and i choose balance transfer (no emi) 6 months option with sbi. Sbi mentions the below
    – 0 processing fee
    -1.7% interest Per month

    as per my calculation
    Month Outstanding amt interest tax(15% of interest) min amt paid
    levied
    1 100000 1700 255 1955

    my question is for month 2, will my outstand be 100,000 or 100,000 – 1955 ? similarly for other months as well

    Reply
    1. AvatarTeam BankBazaar

      Hi anand,
      We suggest that you get in touch with SBI for the calculations. We’ll need to know all the terms and conditions of the balance transfer offer in order to help you.

      Cheers,
      Team BankBazaar

      Reply
  12. AvatarVamshidhar

    Hi
    What is Dropbox mode of delivery in SBI credit card BT?

    Thanks,
    G Vamshidhar.

    Reply
    1. AvatarTeam BankBazaar

      Hi Vamshidhar,

      In case you place a request for a balance transfer, SBI will drop the cheque for the Credit Card bill settlement in your bank’s ATM dropbox. Instead of transfering funds to your Credit Card account or giving you the money to settle the previous balance, SBI uses the dropbox facility.

      Cheers,
      Team BankBazaar

      Reply
  13. AvatarMohit Bhardwaj

    Greetings !

    I was availing the balance transfer facility from SBI to HDFC. I have been recently told from customer care executive that apart from balance transfer, if i make any further transactions on SBI card, i have to pay 3.35% interest + applicable service charges.

    This is ridiculous policy.

    Is it really a policy?

    Reply
    1. AvatarTeam BankBazaar

      Hi Mohit Bhardwaj,

      If you think that SBI is overcharging, you can compare other banks charges and choose the one that you like the best.

      Cheers,
      Team BankBazaar

      Reply
  14. Avatarsourajit mahapatra

    Dear Ma’am,
    I am sourajit. I am having a Sbi Credit card having 60000.00 Credit Limit. Few days back One of my friend Requested me to transfer 30,000.00 to his HDFC credit card. I transfer 30,000.00 rs to his credit card number but still it not credited to his credit card account and it’s already debited from my credit card . Kindly advise me what to do. Kindly mail me regarding this issue how to slove it. (sourajit.mahapatra90@gmail.com)

    Reply
    1. AvatarTeam BankBazaar

      Hi Sourajit Mahapatra, When you make payments from your bank account, you will get a transaction reference number. If you don’t already have it ask your bank by calling their customer care. Once you have this number you can share it with your friend and his bank to trace the money you wired. The banks should be able to check the status of the funds. All the best. Cheers, Team BankBazaar

      Reply
  15. Avatarvenkat

    Hi. I got the BT cheque from SBI to pay my Citibank credit card. My question is where should i drop this cheque ???
    In citibankdropbox?? Please let me know

    Reply
    1. AvatarTeam BankBazaar

      Hi Venkat,

      The general procedure involves dropping the balance transfer cheque in the respective bank’s dropbox. However, we suggest that you contact Citibank directly before you do so.

      Cheers,
      Team BankBazaar

      Reply
  16. AvatarNitin Sharma

    Can i use SBI Balance transfer to my friends hdfc credit card ?

    Reply
    1. AvatarTeam BankBazaar

      Hi Nitin, You can do a balance transfer for your own Credit Cards and not for your friend’s. If you are talking about a funds transfer, you can use your Credit Card to pay your friend’s bill. However, be cautious and avoid getting into a debt trap.

      Reply
  17. AvatarEknadh

    Hi,
    I am planning to avail the balance transfer on emi facility to pay my SBI Card Credit card bill from HDFC credit Card. When I try to avail this facility, delivery mode if I give Dropbox, the amount will be directly paid to SBI Card or we have to go to bank to clear the due? Can you explain the process what does Dropbox delivery mean?

    Reply
    1. AvatarTeam BankBazaar

      Hi Eknadh,

      Dropbox facility is when the bank which is going to clear your Credit Card dues drops the cheque in the other bank’s dropbox. The cheque amount will be the total outstanding amount on your Credit Card. In your case, the dropbox facility will have to be provided by HDFC bank. You will have to check with your bank if this facility is available for your balance transfer. If not, you might have to deposit the cheque yourself to clear your dues.

      Cheers,
      Team BankBazaar

      Reply
  18. AvatarAnup Mishra

    Dear Team,

    I have 4 credit cards with credit limit of 50000, 50000, 30000 & 39000 respectively. The outstanding is 51441, 75000, 34344, 39457 respectively. I want to close all the credit card accounts with Balance transfer on EMI option so that I could pay single EMI every month. Please suggest.

    Reply
    1. AvatarTeam BankBazaar

      Hi Anup, Kindly check if you’re eligible for a Balance Transfer Credit Card. Or you could take a Personal Loan and consolidate your debts. Cheers, Team BankBazaar

      Reply
  19. AvatarRajeshkumar N

    I have HDFC credit card with the limit of 227000. In this current o/s is Rs.100000. I checked in netbanking for balance transfer option but not avail currently.
    Kindly suggest how to make this in to EMI.

    Reply
    1. AvatarTeam BankBazaar

      Hi Rajeshkumar,

      Please call up HDFC bank customer care and they will help you.

      Cheers,
      Team BankBazaar

      Reply
      1. Avatarrajesh

        Hi,

        I Check with HDFC customer care (email), but they denied, Is there any way to convert the same into EMI

        Reply
        1. AvatarTeam BankBazaar

          Hi rajesh,

          Unfortunately, if HDFC has denied it, then they may not be having this facility for your Credit Card.

          Good luck.

          Cheers,
          Team BankBazaar

          Reply
  20. AvatarIshwar

    What is difference between BT and BT on EMI …Please Explain with an example …
    Thanks in advance

    Reply
    1. AvatarTeam BankBazaar

      Hi Ishwar,

      Balance transfer (BT) is when you transfer the entire outstanding payable amount from your Credit Card to another issuer. Eg: Say you had an outstanding balance of Rs. 10,000 on your Axis Bank Credit Card and you want to change to an SBI Credit Card. You will transfer the debt of Rs. 10,000 from your Axis Bank Credit Card account to your SBI Credit Card account and then start paying SBI the remainder sum (i.e, Rs. 10,000). EMIs work differently than balance transfer.

      Since we are talking about Credit Cards, some Credit Card companies offer EMI options to make outstanding payments. Eg: You swiped your Standard Chartered Bank Credit Card to pay for flight tickets worth Rs. 25,000. At the time of purchase, you would have paid the whole amount because Standard Chartered would pay the merchant the entire Rs. 25,000. But because they may have an EMI option for you to repay that money back, you don’t have to pay the entire sum of Rs. 25,000 all at once. You can pay them in installments. Say you can pay the sum of Rs. 25,000 in 5 monthly installments of Rs. 5,000.

      Hope this information was helpful. Here’s an article on EMI to help you understand better.

      Cheers,
      Team BankBazaar

      Reply

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