Credit cards can simplify financial management, offering rewards and benefits like improved credit scores and lounge access. However, if bill payments become challenging, balance transfers can provide temporary relief, albeit with potential fees and risks that require careful evaluation.
Credit cards are a great tool to manage finances. They not only make life easy because of the ease of usage, they are also heavily rewarding if used in the right manner. Apart from ease of spending and earning rewards, credit cards are a great way to build credit score, get facilities like lounge access, free movie tickets, golf lessons among a host of other benefits.
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There are credit cards that can also provide enough points and miles to get free stays in five star hotels or fly business class internationally. However, there are situations in life where you may find it hard to pay the credit card bills on time, which could be due to unexpected medical expenses or a job loss.
A temporary solution for this burden provided by many credit card issuers is called a balance transfer. This option allows you to move your outstanding balance to another credit card that offers a promotional period with zero or reduced interest rates, giving you some more time to manage your cashflows and clear the dues.
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Certain benefits of using the balance transfer facility as follows –
- It can lower the cost of borrowing on credit cards. If you do not pay the outstanding amount on your credit card, it can cost you as high as 36 to 48% per annum.
- Balance transfer could get you additional interest free periods for a very minimal cost.
- It could provide you some time to figure out how to make the balance payment.
The balance transfer facility is obviously not without its downsides. There are certain things that you need to be mindful of such as –
- There could be a flat balance transfer fee levied by the credit card issuer.
- There is a possibility that there might be a monthly charge on the balance transferred.
- It will impact your credit score as balance transfer requires a hard enquiry on your credit score.
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Before doing a balance transfer, keep in mind that there’s usually a processing fee. So, it’s important to first figure out how much you’ll actually save overall. For the transfer to be worth it, your savings should be higher than the fees and any other costs that might come with the transfer. It’s a good idea to do a quick comparison of the costs and savings in advance to make sure it benefits you.
Let us take a look at some of the card issuers who can provide balance transfer facility at the lowest cost possible –
SBI Credit cards
There are two plans from SBI that provide balance transfer. First one has a flat processing fee of 2% and a payment period of 60 days without any further interest and the second one allows you to pay within 6 months at a monthly interest rate of 1.7%. You can apply online or by calling customer care. Some cards where balance transfer is available are SBI Elite, SBI Octane, SBI Club Vistara card among others.
RBL Bank
You can transfer the balance to RBL Bank’s credit cards. The cheapest option is where you agree to make the repayment within 3 months which has a processing fee of 2.99% subject to a minimum charge of ₹750. This facility is available with all cards of RBL.
Kotak Mahindra Bank
Another bank that only has a processing fee but no fixed interest cost. The maximum transfer allowed is 75% of your credit limit. You need to have an active card for more than 6 months. There is a charge of ₹349 per 10,000 of balance transferred.
ICICI Bank
You can transfer a minimum amount of ₹15,000 and maximum amount of ₹3 lakhs with ICICI bank. The charges are shared at the time of application.
The balance transfer facility can be obtained against all credit cards of the above providers. You must be already holding a credit card to use the facility. The turnaround time could be longer if you were to apply for the card at the same time you wish to undertake the balance transfer facility.
Conclusion
Lastly, I do not recommend anyone to use this facility. If you ever are in a situation where you have to use this facility, it clearly means that you are not managing your finances well. Credit cards must be used as a tool to manage cashflows, have an interest free period, to optimise discounts and offers and earn rewards points on expenses. It must not be used as a tool to borrow. If you are unsure about using credit cards, work with a financial advisor to understand the status of your finances and act according to their recommendations.
