Credit Card Balance Transfer: How It Works And When Should You Opt For It?

While a credit card can offer significant rewards, it is essential to be mindful of the debt you incur. Managing debt is a crucial aspect of responsible credit card usage. Accumulating substantial debt on a high-interest credit card can create a heavy financial burden. One way to ease this burden is by reducing the interest rate on your debt.

A practical approach to achieving this is through a credit card balance transfer. This allows you to move your outstanding balance from a high-interest card to one with a lower interest rate, helping you save on interest charges. As a result, you can pay off the debt more quickly and improve your credit score.

You can transfer your outstanding credit card debt to a balance transfer credit card. These cards typically offer a low or even zero interest rate on the transferred balance for a limited period.

However, it is important to note that this low or zero interest rate applies only for a specific timeframe. To maximise the benefits, you must clear the debt within this period. Otherwise, you will face high interest rates once again. Additionally, the reduced interest rate does not apply to new transactions made with the balance transfer credit card — such purchases will be subject to the card's standard interest rates.

Furthermore, a balance transfer fee is usually charged, ranging from 1% to 3% of the transferred amount.

If you are finding it difficult to pay off your credit card dues, you can consider transferring them to a balance transfer credit card with a low or free interest rate. This will reduce your debt since the applicable interest rate is much lower than that of the original credit cards.

However, it is essential to carefully calculate your potential savings before proceeding with a balance transfer. Along with the transferred amount, you may have to pay processing fees, balance transfer fees and any additional charges. To maximise your savings, thoroughly analyse and compare the terms and conditions of different balance transfer credit cards to determine which offers the best financial advantage.