What Is a Balance Transfer?

Tuesday, 28 Dec 2010 12:03 PM

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Credit card bills need constant monitoring because any delay in bill payment will lead to a financial loss. Balance transfer or balance transfer credit is a good way to offset this financial risk. It allows the transfer of your existing payable balance on one credit card to another, at a lower rate of interest. Thus, a balance transfer credit helps avoid high interest rates and late payment charges.
 
Consider the following to understand balance transfer credit:
  • Credit card companies offer free balance transfer credit to lure you into taking a new credit card from them. They will replace your existing credit card with their new credit card, and the balance you owe under the existing credit card is now transferred to the new credit card. This balance transfer credit is done free of cost. You also get to enjoy a grace period, between six to twelve months, during which the new credit company charges a low rate of interest – as low as 2% or 1% or even 0%. This grace period is an excellent opportunity to considerably bring down your loan because most or all of the money you pay now goes toward the loan. Just make sure you are not trapped by hidden charges.
  • No major credit card company is presently offering “no-fee” balance transfers with 0% rates. At the start of September, average balance transfer credit card fees charged by companies offering 0% interest balance transfers for 11 months or more averaged 4.1% as the majority of major credit card companies held balance transfer fees steady. Citibank currently offers the longest 0% APR balance transfer deal at 18 months, but this is accompanied by a 5% fee. While the 5% fee is high, the exceptionally long length of this offer by the Citi Platinum Select Card more than offsets the upfront cost.
  • Most banks provide the facility of balance transfer online. Balance transfer online is instant and leaves an audit trail; so it should be considered as a balance transfer option.
  • If you have multiple credit cards, you could exploit balance transfer credit and achieve huge savings on all your cards. Credit cards balance transfer also reduces additional charges and penalties for missed payments.
  • A few credit card companies offer lifetime transfer at low interest and balance transfer fees. These are superior to instant credit card transfers which carry higher interest rates.
  • Also, credit card balance transfer offers cash back on purchases. For example, when you purchase online or from top retailers, gas stations, restaurants, etc., you can get cash back cards, airline miles cards, gas rewards cards, rewards credit cards, etc.
Considering all these points, it makes sense to use balance transfer for credit cards.

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