Looking to pay off a huge Credit Card bill before the due date to avoid high interest charges? Credit Card balance transfer to the rescue! With attractive offers and interest rates as low as 0% APR (Annual Percentage of Rate), balance transfer has become the next big thing in the world of Credit Cards. But, there are a few things you should consider before jumping on the balance transfer bandwagon:
Different APR for different uses
A lot of banks nowadays are offering new Credit Cards for balance transfer at 0% APR. Though the offer is alluring, one must check if these new cards have a higher APR for fresh purchases. If yes, then you must avoid swiping it for new expenses and use it solely for the purpose of debt repayment. Make sure you check this beforehand. Be warned that most balance transfer Credit Cards charge a high interest rate for new purchases, so use it only to clear the earlier dues and NOT for buying anything new! Some banks even charge you interest for a month irrespective of the date on which the transfer happened. Check the terms and conditions.
As part of promotional offers, banks offer Credit Cards for balance transfer at a lower APR. But generally, the lower promotional rate of APR lasts only for a couple of months, post which the interest rates become higher. So, if you are not planning to repay your debt in 2-3 months, then you should reconsider opting for a balance transfer.
So, what needs to be noted? Well, make a note of the fact that you HAVE to clear your outstanding dues in the given time frame. If the offer is valid for three months, you get three months to clear your dues after transferring them to a new card. Got it?
Also, note that some banks offer the EMI mode of repaying your Credit Card balance when you opt for balance transfer. Don’t choose to do the transfer just because the option of instalments is being given. You need to check the interest rate as well as the terms and conditions. Another important point to remember is that such payments will involve service tax. So, the EMI will actually be EMI plus service tax. Currently, the service tax rate is 15%.
Though banks may offer 0% APR for the new Credit Card, one must be wary of the processing fees. At times the processing fees might be very high, making you shell out more than what you might have if you had continued with your existing card. So, take a calculated risk. What do we mean, you ask? Calculate all the charges, if you get a balance transfer card and compare it with the charges for the existing card. If the difference is huge, go for it! If not? Choose wisely!
Impact on your Credit Score
Opting for a balance transfer to a new Credit Card might lower your Credit Score temporarily. Yup, you read that right! And if you are looking for a Home Loan anytime soon, then a lower Credit Score might lead to a higher interest rate. So, it is better to stay away from a balance transfer just before you apply for a Home Loan. But, paying off your Credit Card balance can have a huge positive impact on your Credit Score.
Additional Reading: Top 5 Credit Cards For 2016
Well, now that you know everything about Credit Cards and balance transfer, go ahead and explore your options!