Balance Transfer: Is it really attractive?

Today all banks try to induce potential customers to switch from one credit card to another by offering balance transfer that too at a cheaper rate. It is generally known that low interest rates or even zero interest rates are available for balance transfer. But you should know that these rates are for introductory period only (say 3-6 months) and once it is over, it returns to the normal rates. Still the rate of interest which you might be paying for your outstanding credit dues will always be higher than the balance transfer interest rate.

What does balance transfer mean?

Balance transfer is a facility offered by all the credit card issuing companies to the cardholders which enables them to transfer the existing outstanding or debt of one credit card to another, less used or even new. The Credit limit of the new card or less used card from which you have availed the balance transfer facility reduces proportionately to balance transfer amount. Say your credit limit of your card is Rs. 25000 and you have opted for balance transfer of Rs. 10000, the credit limit will be reduced to Rs. 15000. But remember that your balance transfer amount should not exceed 80% of your credit limit.

Balance transfer process

Before entering into balance transfer, it is important for you to know the process.

As a first step, you have to inform the credit card issuer that you want to avail the balance transfer facility. The credit issuer will send an officer with a balance transfer form. Here you have to fill in all the details of your old credit card and also attach latest bill statement. Normally after 7 to 10 working days, the credit issuer will send a Demand Draft (DD) to your residence which will be in the name of the old credit card issuer. After you submit this DD to the old credit card issuer your outstanding gets cleared. Now you have to pay the balance transferred amount to the new credit card issuer.

Things to watch out for...

On reading the above process carefully, you will find that there are certain things on which you have to keep a very close watch. As you know that process takes 7 to 10 working days or even more, here you need to sense the catch... while you are waiting for the balance transfer amount there are high chances that you may miss the due date of payment. So now that you have not paid even the minimum amount thus there is a default. This can have an adverse effect on your credit report. Thus it is always advisable to keep on paying the minimum due amount till you receive the DD of balance transfer amount.