NEW DELHI Have you exceeded your budget while swiping your credit card recently? If yes, a balance transfer could be a convenient way to delay your card payment with minimal interest, giving you time to arrange funds.
Making a partial payment or not paying your credit card bills can attract a high interest rate, more than 30 percent per annum in some cases, and can push you into a debt trap.
Using the balance transfer option provided by many credit card issuers in India, the interest outgo could be reduced to as low as zero percent for a few months, giving you enough time to arrange funds. Most banks would charge a nominal processing fee for this option.
But experts say that the availability of this service should not be the only criterion for making purchases and people should try and stay within their budget.
"While it is an excellent way to save interest, and one can certainly make the most of this facility to gain some time to get one's personal finances in order, it is inadvisable to use this facility only as a means to delay payments," says Dia Kirpalani, Senior Manager of Financial Planning at PersonalFN.
Having more than one credit card is a basic requirement for using this service, though one still needs to carefully check and calculate the processing fee and various interest rate options available on a particular credit card.
HOW IT WORKS?
Let us assume you make a purchase of 50,000 rupees via Bank A's credit card and are short of funds when you receive your card statement.
You call the customer care helpline of Bank B, where you are holding another credit card, and ask for a balance transfer option.
Bank B offers you a zero percent interest rate for 90 days and says it will charge a 2 percent processing fee. You opt for this and Bank B charges 1,000 rupees as fee (2 percent of 50,000 rupees) and sends you a cheque in favour of Bank A.
You deposit this cheque in Bank A and clear the outstanding amount there. Your balance is now transferred to Bank B and you now have 90 days to clear this debt. However, you will have to pay at least the minimum amount due (usually 5 percent) every month.
Your bank may offer various balance transfer options and you can opt for the one that suits you. Keep an eye on payment dates and ensure the outstanding debt is cleared within the offer period, otherwise you will have to pay a higher interest rate.
"Remember that the teaser rate on the new bank's card is temporary," said Kirpalani. "If the consumer can pay off the outstanding amount during the teaser rate period, the interest savings will be significant."
(Aditya Kalra is a Reuters journalist. The views and opinions expressed here are his own and not those of Reuters. The article above is not intended to be a financial advisory. Readers must seek specific advice from experts before making investment decisions)