A balance transfer is no joke! It’s a very serious issue, and I firmly believe it needs proper precision to be successful at it.
There are things you need to pay attention to before doing a balance transfer, and to certain things after the transfer is done.
By now you must have already seen and came across many banks that offer balance transfer opportunities at very attractive terms and conditions. But that doesn’t mean they are welcoming you to do so!!
Remember, they are greeting you to do a balance transfer not only because you are in need of it, but also they see high profit if for once you start defaulting on payments after you have transferred your balance.
So, what is a balance transfer after all?
As per the words of finance, a balance transfer or debt transfer refers to handing over debts from one credit account to another.
However, here we will discuss credit card balance transfer, which is the most widely used debt transfer type among consumers and in the current financial market.
Suppose, you have a maxed out credit card. A maxed out credit card means its balance has crossed its credit limit, or is just about to cross.
Hence, you are pressurized to pay off this balance as soon as possible.
But, you see that no matter how many extra payments you make, until and unless you pay it off in full at one blow, your credit portfolio will remain hurt!
And, that’s exactly when a credit card balance transfer will come of great help. By opting for such an aggressive debt relief option, you can transfer your old card’s existing debt to a new card.
Hence, you search on the net for a balance transfer card, and see search results from every bank offering awesome balance transfer facilities!
Sounds lucky and probably seems like a gift from God right?!
Well, the situation is actually pretty complicated than it looks.
Obviously, you will be taking a very good step, as your old card’s balance gets wiped out with a single stroke.
Also, you are getting a good chance to escape paying high-interest amounts, as your new card is either coming with 0% APR (Annual Percentage Rate) intro period or a rate much lower than your previous card.
But where is the catch? Where is the big deal?
Why do the banks want you to do a balance transfer?
Well, they want you to do so because you start to owe them a good amount of money by doing a balance transfer.
If you have a credit card debt with bank X, then if you pay it off in the traditional way, then only bank X will get the money.
Now, once you transfer it to bank Y, then bank X gets paid, and so does bank Y! Therefore, in the middle of nowhere bank Y gets money from you, that was previously not included in the calculation!
Moreover, many banks charge a balance transfer fee. So, that’s an additional profit they are making.
This is very interesting I must say, how one debt can benefit multiple lenders at the same time, with you transferring the amount from one lender to another.
As an extra note, believe it or not, this is exactly the same way how debt collectors work!
They buy the debt from your original lender at a very low price, and collect from you the original amount (this amount can accrue interests), thereby making a huge profit!
The balance that we carry on our credit cards is pretty high and a big amount for us, but for the banks and the tall financial institutions, they seem like ants.
Not to harm the motivation to pay off debts, but these banks really love to play with our debt amounts.
They will just sit back, make a profit, and see you and me jumping around with our debts, doing a balance transfer, settlement, and what not.
That’s how it works. But, it doesn’t mean you should not execute your credit card balance transfer that you have planned for.
If they can take their share of profit, so can you.
Here’s how to do the best balance transfer to avoid mistakes and utilize the most of it:
a. Choose a balance transfer card that at least offers 6 months of 0% APR introductory period:
This should be your first preference if you plan to transfer your credit card debt.
There are quite a number of credit cards from reputed banks that are specially designed for balance transfer.
If you call your choice of banks and ask them to give you all the details about their available balance transfer credit card products and the specifications they carry, then you will not be dissapointed.
So, it’s your call, and therefore go for a card that offers a minimum of 6 months of 0%APR intro phase. Best, if you can grab those that carry 20 months or 1 and 1/2 years of 0% intro!
The more lengthy is this intro phase, more is the time you have to pay off your debts at no additional interest charges.
b. You may do multiple balance transfers, but make sure you are not holding onto your debt for too long:
I have already said earlier that the banks love to play with us. But, don’t you worry, as so can we play with them.
How, you might ask!
Well, suppose you transfer your old card debt to a new card that has a decent 0% APR time period. We can assume that to be 1 year, for instance.
If you can pay off your credit card debt within this time, then well and good. Else, after 10 or 11 months, you can again take out a new card from a different back and transfer the remaining debt to this card!
But, this can be a dangerous game, if your intentions are not to repay the debt. So, keep your head straight and only do multiple balance transfers, if you can’t pay off the debt at a single ‘go’, ethically!
If you do this for fun, then you will be caught in your own chains and your debt might start to accrue penalty fees, and other balance transfer fees, that many banks charge!
Don’t readily close your old card right after you transfer the balance:
This is a big mistake that many do!
Once they transfer their balance onto a new card, they straightaway close their previous card.
Keeping the old card with a zero balance on it is actually very good for your credit portfolio, more so if the card has a pretty old history.
So, there’s absolutely no need in closing the cards if they charge no additional fees to keep them open.
Moreover, before I end, all I will say is, you have many balance transfer credit cards, to choose from, offered by many banks!
You have full freedom to choose the card that you find the best.
But make sure that your main motto always remains to pay off your debts.