Struggling with debt? Learn how credit card balance transfers can helpnews24

Saddled with huge credit card bills that you are finding difficult to pay? While converting your big-ticket purchases into EMIs (Equated Monthly Instalments) will help, you can manage these huge bills by transferring them entirely to another credit card that charges nil/low interest rate for a limited period of time.

While State Bank of India (SBI) and RBL Bank offer zero interest for credit card balance transfers for a limited timeframe, others including HSBC India provide them at low interest rates. Here is a guide on credit card balance transfers, its benefits, do’s and dont’s in the process.

What is a credit card balance transfer and how does it work?

It involves transferring your credit card balance to save money on interest while paying off your debt at the same time. Credit card balance transfer works well for those who have mounting bills and are finding it difficult to pay. You have to first avail a credit card that offers zero interest or low interest rates before making a transfer. But do remember that you will have to pay the minimum amount due on your existing credit card before transferring the debt to the new card.

“A balance transfer makes it easier for you to repay your credit card debit in flexible equated monthly instalments. If you’re being charged interest on existing credit or store card debt, you’ll be able to move that debt onto another card that offers an interest-free or low-interest period on the money transferred,” HSBC India said in its explainer on credit card balance transfers.

“If you use it in a smart way, a credit card balance transfer can be a faster and cheaper way to pay off your credit card debt,” it said. “Balance Transfer (BT) facility on SBI Card enables the cardholders to transfer their outstanding credit balances from any other credit card, issued by a different bank, to their SBI Card at lower rates of interest,” SBI said. BT payment will be done through NEFT (National Electronics Fund Transfer) directly to your other bank credit card account within 2-3 working days.

How much credit card debt can you transfer and what are the low interest options?

The minimum and maximum balance transfer amount varies with each lender. But it typically comes to a minimum of ₹5000 and a maximum of 75% of your available credit limit on your card. The minimum and maximum amount available for balance transfer will be communicated to you when you apply for the same.

Currently, State Bank of India offers zero interest on credit card balance transfers for 60 days. But you have to pay a processing fee that is capped at ₹199 per transfer. SBI charges an interest of 1.7% per month (20.4% per annum) for balance transfer for 180 days.

RBL Bank also offers zero interest on credit card balance transfer, which is available for three months with processing fee capped at ₹750 per transfer. It charges interest on transfers after three months. HSBC provides balance transfer for interest rate that ranges from 10.99% to 15.99% per annum. ICICI, HDFC and Kotak Mahindra are among the banks that offer balance transfers at interest rates that are typically lower than the rates charged by regular credit cards.

How will you be able to really benefit while making such transfers?

Irrespective of the credit card you use, you have to check the terms and conditions of the new card to which you are making the transfer. You should be aware of the duration of the zero or low interest period and the fee charged for the process. Though you will be only required to make a minimum monthly payment when you transfer the debt, you will be able to clear your dues only if you repay a larger amount each month.

You can also reduce the debt by making multiple repayments throughout the month. If you have some spare cash, you can utilise it to pay off some of the debt. You should clear the debt before the zero or low interest period ends. If you have an outstanding balance when the period ends you will either be charged a higher interest or the regular credit card interest rate.

It also helps if you do not use the card too much during this period. “The goal of a credit card balance transfer is to enable you to repay your debt while saving money on interest. The less you use the card, the less money you owe, and the faster you can pay back that debt,” HSBC said.

If you still do not have enough money to repay at the end of the zero or low interest period, you should consider closing the debt by availing low-cost loans. You can also look at moving the debt to another card that offers lower interest rates. But it is not advisable as making too many debt transfers will have an adverse impact on your credit score.

Allirajan M is a journalist with over two decades of experience. He has worked with several leading media organisations in the country and has been writing on mutual funds for nearly 16 years.