US credit card debt crossed $1 trillion on August 8, 2023. In India, too, credit card dues surged by almost 30 per cent as of April 2023, according to RBI data.
So is there a solution to rid oneself of debts?
The answer may lie in moving your high-interest credit card debt to another card providing lower or zero interest; for instance, some card companies launch introductory offers.
The debtor should also try to reduce the principal amount quickly. But to avail of the balance transfer option, the card company you are approaching must also have such a facility.
However, beware of charges associated with balance transfers.
Dev Ashish, a Sebi-registered investment advisor, says, "While opting for a balance transfer to secure lower rates might seem enticing, its value lies in promptly clearing the dues. If that's not feasible, it's wiser to consider a personal loan at relatively reduced rates to settle the entire credit card balance, thus saving on steep credit card interest."
Dev underscores that a robust debt repayment strategy must accompany this exercise.
Some banks provide zero per cent interest rates on the transferred amount for a month or as low as 1 per cent for three months. So borrowers should ensure repayment within this period.
Further, if you have several credit card debts, you can combine them into one amount. You can learn about this facility through the card issuer's website or customer care. But frequent balance transfers and postponing interest payments could adversely impact your credit score.
Credit Card Balance Transfer: Steps Involved
Visit the card issuer's website or a nearby branch.
Shifting dues from a high-interest credit card to a lower-interest one is the only feasible way. So, ascertain the interest rates. Check the balance transfer fee of the lender, the duration of the promotional period, and the standard interest rate following the promotional period. Identify the hidden charges. Find a credit card offering lower rates, preferably a zero per cent introductory offer.
Some banks do not charge for balance transfers. If your bank charges any fee, pay the fee and initiate the request. Note the credit limit on your card before initiating the transfer, as the transferred balance must not exceed this limit. If your second credit card has a limit of Rs. 70,000 and your previous credit card's pending dues are Rs. 1 lakh, you can only transfer Rs. 70,000 to the new credit card.
For instance, HDFC Bank, the largest credit card issuer, outlines the balance transfer process that requires no documentation: Provide your mobile number and the last four digits of your HDFC Bank Credit Card for an eligibility check.
Verification will be carried out through an OTP. Confirm the amount to be transferred from another bank's credit card to HDFC Bank after checking the eligible amount. A demand draft for the loan amount will be dispatched to your registered address.
In conclusion, balance transfer is your secret weapon to conquer credit card debt, but the issuer’s conditions should be considered carefully, along with an assessment of your capacity to clear your dues.
