Expert Debt Management
Expert Debt Management
How debt to credit ratio affects your credit
What is Credit Card Balance Transfer and When do You Need it
Balance transfer in the context of a credit card refers to transferring your debt from one card to another. Balance transfer is a preferred mode of managing your debt because it allows you to escape higher interest rates applicable at your current card, and transfer your debt to a card that has a lower interest rate. Balance transfer is used by credit card companies as a marketing technique, but one which has a real benefit for the consumer. The new card gains another customer, whereas the customer gains a card that comes with lower interest rates.
More about Balance Transfer
There are some facts you need to know about balance transfer before you use it to get lower interest rates. As with a lot of other financial instruments and features, balance transfers come with their own fine print, some of which is mentioned here:
1. Balance Transfer Fees
More commonly known as a transaction fee, this fee is over and above the interest rate that is levied on a balance. The new card may have lower fees, but you still have to pay a transaction fee when transferring debt. Normally, your balance is charged a one-time fee of up to 5% when transferred from one card to another. In Australia they have nil fee offers! Itís true, you can see here https://www.hsbc.com.au/1/2/personal/credit-cards/balance-transfers
2. Teaser Rates
Many a times, a card will give you low rates that are applicable for only a limited amount of time. For example, a bank may have lower Annualized Percent Rate (APR) for one year, and then it may revert back to a higher rate after one year is over. This is called a teaser rate, which you need to be careful about when transferring your balance to a new card.
3. Order of Payments
If you have more than one type of debt, such as purchase bills as well as cash advances, an order of payments specifies which of your debts will be serviced first when you make your payments. It is important for you to go over the order of payments to make sure that you know what you are paying off, and what is being held off till later.
Consolidating Credit Cards using Balance Transfers
It should be noted how the word balance is being used in the context of balance transfer. The word refers not to real balance, but to debt that your owe. Therefore, what you are transferring is debt, and not just a positive balance.
When you are in debt from more than one credit card, and find it difficult to manage multiple monthly payments, you can consolidate credit cards so that all your debt is in just one card. This way you get two benefits: that of lower interest rate, and that of ease of use because now you only have to manage payments for just one credit card.
You can use the balance transfer feature when you are consolidating credit cards. You can also use this feature to transfer debt from a higher interest card to a lower interest card.
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