It's been a while since people started making use of balance transfers to settle debts on a credit card carrying a higher rate of interest, but the confusion about various aspects of it still prevails. While some still aren't completely aware of it, others keep a safe distance from further getting involved in what's essentially a chain of money transfers from one card to another. So, how exactly does it work? For that, let's first understand what a credit card balance transfer means. In simple words, the process involves transferring the money a cardholder owes from one card to another.
It offers an array of benefits but the biggest of them is paying off the debt of a card, which carries a higher rate of interest, with a card with either negligible rates or sometimes even zero interest. Some banks do charge a transfer fee, though.
One of the major reasons people opt for credit card balance transfers is to reduce financial stress. The debt accumulated on the card with lower or no interest can then be paid by the holder.
Besides, this also saves the cardholder from being charged hefty penalties for not making their payments on time. Having said that, it's important to underscore here that the balance transfer feature suits only that cardholder who can pay off the debt within a few months. If a cardholder knows that they can't make that payment within the stipulated period, going for a personal loan may prove to be a better option.
Benefits of Credit Card Balance Transfers:
1) Balance transfer credit cards, when compared to finance charges, cost a cardholder significantly less, for the rate of interest is lower. For instance, while finance charges on a credit card may cost a cardholder about 3.5 per cent per month, the interest rate on a balance transfer credit card is somewhere around 1.8 per cent.
2) It's undoubtedly one of the most convenient methods a cardholder can adopt to get rid of debts accumulated.
3) Once the interest rates are lower, it becomes easier for a cardholder to make payments and enhance credit score as well.
4) Not just that, sometimes banks providing such cards also offer cardholders buffer time to clear their outstanding payments, and that period has zero rates of interest or a very nominal rate.