It’s been a while since people started using balance transfers to settle debt on a higher interest rate credit card, but confusion over various aspects still prevails. While some are not yet fully aware of it, others are keeping a safe distance to become more involved in what is essentially a chain of money transfers from one card to another. So how exactly does it work? To do this, let’s first understand what a credit card balance transfer means. Simply put, the process is to transfer the money a cardholder owes from one card to another.
It offers an array of benefits, but the most important of them is to pay off card debt, which carries a higher interest rate, with a negligible rate or sometimes even zero interest card. However, some banks charge a transfer fee.
One of the main reasons people choose credit card balance transfers is to reduce financial stress. Debt accumulated on the card with less or no interest can then be paid by the cardholder.
In addition, it also saves the cardholder from facing heavy penalties if they have not made their payments on time. Having said that, it’s important to stress here that the balance transfer feature is only suitable for the cardholder who can pay off the debt in a matter of months. If a cardholder knows they can’t make that payment within the allotted time, resorting to a personal loan may be a better option.
Benefits of Credit Card Balance Transfers:
1) Credit cards with balance transfer, compared to finance charges, cost the cardholder much less because the interest rate is lower. For example, while finance charges on a credit card can cost a cardholder around 3.5 percent per month, the interest rate on a credit card with balance transfer is around 1.8. percent.
2) This is without a doubt one of the most convenient methods a cardholder can adopt to get rid of accumulated debt.
3) Once the interest rates are lower, it becomes easier for a cardholder to make payments and also improve their credit rating.
4) Not only that, sometimes banks providing such cards also offer cardholders a buffer time to settle their overdue payments, and this period has zero interest rates or a very nominal rate.