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A guide to balance transfer cards

A guide to everything you need to know about balance transfer credit cards and whether they are right for you

How To Use Balance Transfer Credit Cards To Get On Top Of Your Finances

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Having a credit card has become an indispensable part of life, thanks to the convenience they offer. However, it is also as easy to run up a high-interest debt on credit cards as it is to use them.

Paying off credit card debt can seem like an uphill battle at times when you keep repaying small amounts every month but the interest just keeps building up.

A balance transfer credit card can help you repay the debt in a faster manner and also save you money.

Here’s everything you need to know about how to do a credit card balance transfer:

As the name suggests, a balance transfer refers to shifting the existing credit card balance to a new credit card.

Opting for balance transfers doesn’t automatically make you debt-free. It simply helps you transfer the outstanding amount to another card and repay it at a significantly lower interest rate, known as the balance transfer annual percentage rate (APR).

To entice cardholders, some credit card issuers who offer balance transfer cards waive off the balance transfer fee which is usually between 3 to 5 percent of the transfer amount.

They also provide a temporary promotional APR, which is much lower than the interest charged by the existing credit card company and can sometimes be even as low as 0%. The promotional APR applies for anywhere between six to 21 months. Upon its expiry, the regular APR kicks in.

Overall, a balance transfer is an excellent way to simplify your finances.

The first step of how to do a credit card balance transfer involves reviewing your current credit card dues and the interest payable, which is expressed as an annual percentage rate (APR). You can usually find the APR in your monthly statement.

Choosing the appropriate card for initiating the transfer is easier once you have this information handy. As balance transfer is a way to get out of debt faster, you should look for a card that offers favourable payment terms so that you can repay the debt at a lower interest than what you are currently paying.

Once you get approved for a balance transfer card, here’s how you can start paying off the debt. Bear in mind that the exact process of how to do a balance transfer varies depending on the credit card issuer:

Step #1: Initiate the balance transfer request

Contact the new credit card issuer to place a balance transfer request. You can do this online or over the phone. You’ll need to provide the necessary details, such as the account numbers linked to the old card and the amount of the outstanding debt.

Alternatively, the new card issuer may provide you with convenience checks. You can directly repay the existing credit card company by making a check out to them. If you are using a check, make sure to review the terms to find out whether such a transaction will be considered cash advances by the new issuer.

Step #2: Wait for the transfer request to get approved

Upon approval, the new issuer will transfer funds to the existing issuer to pay off the outstanding. Your new account will reflect the old balance you will need to repay. If the new issuer hasn’t waived the balance transfer fees, it will reflect an outstanding balance on the new account.

As processing balance transfer requests take a fair amount of time, sometimes even as long as 21 days, ensure that you make pending payments on the old card till you receive a confirmation from the new credit card company. Otherwise, you may end up paying a hefty penalty for late payment.

Step #3: Start clearing the debt on the new card

Once the balance is added, you’ll need to start making payments according to the terms of the new card issuer. Paying off the balance or at least a large chunk of it when the APR is the lowest can help you save on the interest.

When choosing a balance transfer card, look at the APR and any fees that the issuer may charge you for the card.

Ideally, you’d want a zero percent or minimum introductory APR, no annual fee, and balance transfer fee waived off. Pay attention to the length of the promotional low-APR period -- the promotional period should last long enough for you to repay as much debt as possible.

Review the cardholder’s agreement to specifically check for the penalty for late payments or exceeding the credit limit as all these can add up and make a low APR significantly higher than expected.

Even though balance transfer offers an excellent solution to manage your finances better, they cannot magically make you debt-free. You need to ensure that you repay the dues on time to stop getting trapped in a never-ending debt cycle.

Before applying for a balance transfer card, carefully review the terms and conditions to avoid any last-minute surprises.

While most credit card issuers usually offer the introductory APR for at least six months, they have the right to cancel it if payments are overdue for more than 60 days. Also, keep in mind that same-issuer balance transfers are usually not permitted.

Lastly, higher credit scores can help you snag the best offers on balance transfer credit cards. In fact, several issuers make the actual number of months at zero percent APR during the introductory period conditional on the cardholder’s credit score. So make sure you always read the finer print.

With ClearScore, you can get a free credit score report and apply for balance transfer credit cards in just a few clicks.

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