Q: Does it make sense to go for a credit card balance transfer plan? Abrar
A: Hi, Abrar. Since you’ve not provided additional details about your credit card debt situation, I won’t be able to suggest whether a balance transfer plan can work for you or not. That being said, it’s critical that one understands a balance transfer plan in full and make an informed decision based on his/her requirements.
A balance transfer plan is when you transfer a snowballing high-interest charging credit card due to another credit card with better repayment terms like a lower interest rate for a specified period. While such a move may help in better managing your credit card debt, one must ensure to repay the transferred debt in full within the lower-interest timeframe (usually 3 to 12 months). Post that, the new card provider will charge interest at a usual high rate (like 4% per month!) apart from other late fees and penalties.
Also, you’ll be well-advised to factor in the following:
- A balance transfer plan usually carries a processing fee
- The credit limit on your new card should be able to accommodate your debt
- Banks also have in place specified limitations in terms of transferred balance; for example, the total debt amount shouldn’t exceed Rs 3 lakh
- The lower interest rate doesn’t apply on other expenses charged to the new card
- You need to have a decent credit score to ensure your balance transfer application gets approved
So, get complete clarity on the interest rate of your existing credit card debt and go for a balance transfer only if the lower interest rate on the new card actually makes a huge difference. Remember, if you default on repayment after you transfer the balance, you may further complicate your debt situation apart from damaging your credit score. You may also want to reach out to your existing credit card provider requesting for some interest rate relaxation to help clear your dues before triggering a balance transfer.
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