Credit Card debts can sometimes pile up beyond control. Failing to repay monthly statements can put you in an extremely difficult situation as various penalties and interest rate will also add up to the total amount needed to be repaid.
However, there are ways to handle credit card debts that have gone out of control. Two possible ways to clear out card balance could be Applying for a Personal Loan or a Credit Card Balance Transfer. Both these methods are effective in helping you sort your finances.
While a Personal Loan is streamlining your debt into a monthly payment loan, it is not advisable during a financially difficult time; Credit Card Balance Transfer however may prove to be a more affordable option.
What is a Credit Card Balance Transfer?
A Credit Card Balance Transfer is a process through which you as a Credit Card user request another bank to help you with your credit card debt. The bank looks at your financial details and once agreed upon decides to pay your dues and implements an EMI option at rates much lower than what you were already paying on your card. It would certainly be lower than a fresh Personal Loan.
The process of Applying for a Credit Card Balance Transfer is easy. All you need to do is contact a card issuing company and share your need. You can also consider comparing different products online on a loan & credit cards aggregator website.
A minimum prerequisite to avail a balance transfer would include a good Credit Score and a clean credit history. Make sure you compare the interest rates of previous outstanding and the balance transfer offer and opt only if it benefits you.
Here are the pros and cons of Credit Card balance:
Pros of Credit Balance Transfer
- Better interest rate: Most card issuing companies provide great deals and discounts for credit card users who wish to opt for this method of the balance transfer. It indeed is a great way to attract new customers. The interest rates are usually low in the beginning of the period when you are under financial stress, and the interest is increased later on after giving you enough time to sort your finances.
- Consolidate all Credit Card Debts: When you have several Credit Cards to handle, it becomes difficult to keep track of the interest rates of each card and how much you should pay for each regularly. It is thus ideal to consolidate all the cards and use the balance transfer facility for the same. It will not only make repayment affordable but will also help you manage your debt with more ease.
- Buffer Time: One of the biggest reasons why people go for a credit card balance transfer is because it gives them enough buffer time to manage their finances. The initial few months of the credit balance transfer loan is provided at low interest or no interest depending on the options provided by the bank. Usually, a bank provides a maximum of up to 21 months of buffer time, and the minimum is around 6 months. The time offered varies based on the bank you choose and their policies.
- Immediate relief to debt: While you will need to pay the money back to the bank after a certain period, the time given by the bank as buffer does allow you to gain immediate relief from debts and focus on what it takes to get your finances back on track. It also helps you to get rid of the cycle of credit card usage which is one of the biggest reasons why people fall into debt in the first place.
- Avoid hidden or extra charges: The problem with most credit cards today is that there are several additional and hidden charges that come to light only when you receive the bill. With a Credit Balance Transfer, you can avoid all these problems by directly negotiating with the bank.
Cons of Credit Balance Transfer
- Affects Credit Score: Taking a credit card balance transfer indicates a glitch in your financial management, and thereby this reflects on your credit score as well. This will then affect your ability to get loans in the future as people might come across your track record as someone who has been helped out of a financial situation by a bank.
- Progressively expensive: While the initial few months of the credit balance transfer loan may help you stay out of trouble. The interest rates do get progressively higher as you reach the end of your loan period. This is to compensate for the buffer that was given to you by the bank initially.
- Risk of further debt: When a bank pays your Credit Card dues in exchange for a Credit Transfer Loan you still have your Credit Cards in hand and that too with a full limit. This creates the possibility of a cycle where you still continue to spend on the Credit Card and fall in a similar situation altogether again.
- Loss of grace period on credit card: Once you opt for a Credit Card Balance Transfer, the credit cards then lose their grace period that was previously available. This means that any purchase made on the Credit Card will be added for interest right from the very first day making your bills all the more expensive.
Overall, the Credit Card Balance Transfer is just like any other option provided by banks and financial institution to help you rid of the debts better and ensure they get their money back without a hassle. It is up to us to ensure that we make the best use of the facilities provided and keep our Credit Score strong.
Also Read: Best Credit Cards in India with No Joining Fee and Annual Fee
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