When Should You Use A Credit Card Balance Transfer

A credit card balance transfer can be a practical financial strategy when used wisely. It’s particularly helpful for consolidating high-interest debts onto a card with a lower or even zero per cent introductory interest rate, which can significantly reduce interest costs and speed up repayment. Combining multiple debts onto one card, also simplifies payments, making them easier to manage. Also, if you have incurred very high expenses on your credit card and need some extra time to pay it off, a balance transfer can offer a temporary relief.

For short-term financial challenges, a zero per cent balance transfer can provide temporary relief, allowing you to focus on paying down the principal. “It’s especially effective if you have a structured repayment plan to clear the debt before the promotional period ends,” says Kapildeo Maurya, executive director, Urban Money, a tech-enabled loan platform.

What You Should Keep In Mind

Before opting for a credit card balance transfer, it’s important to weigh a few critical factors to ensure it’s a beneficial move. First, be aware of balance transfer fees, which typically range from one to three per cent of the transferred amount. Make sure the interest savings exceed these costs. One needs to ensure that one can pay off the balance within the offer period. Otherwise, you could face higher interest rates later, which could undermine the benefits.

“Additionally, understand the promotional terms. Introductory rates, often zero per cent or low interest, generally last six to 18 months, after which higher rates take effect. To avoid unnecessary charges, have a clear repayment plan to pay off the balance within this period,” says Maurya.

Check the credit limit on the new card to ensure it can handle the transferred amount, and remember that opening a new card may temporarily impact your credit score due to the hard inquiry. Be cautious with new purchases, as they may not qualify for the promotional rates and could accrue higher interest. “It’s also wise to review the terms of your current card to avoid penalties and compare offers from multiple issuers to find the most favorable deal. Finally, focus on paying down the debt and avoid additional spending to maximize the benefits of the balance transfer and improve your financial health,” says Maurya.